Trade Groups: Proposed HUD Rule Puts Credit Unions in Bind

A credit union may only make loans to members within their field of membership, a restriction likely to skew an institution’s housing discrimination record, trade groups told the Department of Housing and Urban Development this week.

As a result, credit unions deserve a safe harbor from HUD’s updated proposed housing discrimination rules, the groups contend.

“The intricacies of credit union field of membership remain not widely understood by the general public as many are unfamiliar with technical aspects of credit unions’ unique legal structure,” Elizabeth M. Young LaBerge, senior director of advocacy and counsel at the Credit Union National Association, told the agency.

“Providing clarity in this respect would spare credit unions and their member-owners the burden of having to defend against unproductive litigation with limited legal resources,” Andrew Morris, senior counsel for research and policy at the National Association of Federally-Insured Credit Unions, told HUD in a letter this week.

Credit unions could become a target of housing discrimination lawsuits simply because of their membership and who may—and may not—join and obtain loans, Young LeBerge said.

“The practical reality is that many credit unions have been and will continue to be subject to unnecessary litigation on a variety of issues which plaintiffs cannot win as they are ineligible to join the credit union,” she wrote.

In June, HUD proposed re-adopting a 2013 housing discrimination rule. The Trump Administration had re-written that rule and housing advocates said Trump had weakened protections.

When HUD officials proposed re-adopting the 2013 rule, they said that the enforcement framework was clear: “A policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest.”

The 2020 rule change complicated the policy, they said, adding that the Trump Administration had made it more difficult to prove discrimination.

“It is a new day at HUD-and our department is working to lift barriers to housing and promote diverse, inclusive communities across the country,” HUD Secretary Marcia Fudge said, in releasing the proposed rule.

The new rule creates a conundrum for credit unions, the trade groups said.

“Federal credit unions have no discretion to lend to nonmembers―that is a policy dictated to them by the FCU Act and the NCUA,” Young LaBerge told the agency. “Nor is there an equally effective method of compliance with that prohibition, it simply cannot be done.”

Morris noted that in 2012, the National Credit Union Administration suggested that HUD grant a “safe haven” for credit unions.

However, one group of credit union commenters said the proposed rule is a huge improvement since it recodifies the 2013 rule and did not mention the membership issue. “The 2013 Rule properly codified the disparate impact standard that has prevailed in the courts and has been used by regulators, including HUD, for decades,” the Self-Help Credit Union, the Self-Help Federal Credit Union and their affiliate, the Center for Responsible Lending, wrote in a letter to HUD.

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