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entitled 'Credit Unions: Greater Transparency Needed on Who Credit 
Unions Serve and on Senior Executive Compensation Arrangements' which 
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Report to the Chairman, Committee on Ways and Means, House of 
Representatives: 

November 2006: 

Credit Unions: 

Greater Transparency Needed on Who Credit Unions Serve and on Senior 
Executive Compensation Arrangements: 

GAO-07-29: 

GAO Highlights: 

Highlights of GAO-07-29, a report to the Chairman, Committee on Ways 
and Means, House of Representatives 

Why GAO Did This Study: 

Legislative and regulatory changes have blurred distinctions between 
credit unions and other depository institutions and raised questions 
about the tax-exempt status of credit unions. This report (1) assesses 
the effect of the Credit Union Membership Access Act on credit union 
membership and charters, (2) reviews the National Credit Union 
Administration’s (NCUA) efforts to expand services to low- and moderate-
income individuals, (3) compares rates offered by credit unions with 
comparably sized banks, (4) discusses unrelated business income tax 
issues, and (5) assesses transparency of credit union senior executive 
compensation. To address our objectives, we obtained NCUA data on 
credit union membership, charter changes, efforts to target those of 
modest means, and executive disclosure requirements. We also analyzed 
Federal Reserve Board’s Survey of Consumer Finances and Internal 
Revenue Service data. 

What GAO Found: 

Since the passage of the Credit Union Membership Access Act (CUMAA) in 
1998, larger community-based credit unions have constituted a much 
greater proportion of the industry. NCUA has approved federal community 
charters with increasingly larger geographic areas and potential for 
economically diverse membership. Much of the shift toward the larger 
community-based credit unions was due to conversions from other 
charters. NCUA’s approval of these charters appears to have been 
triggered by changes in the economic environment and financial services 
industry and to diversify membership to accomplish goals such as 
increasing service to those of modest means. 

NCUA has established the low-income credit union program and allowed 
adoption of “underserved areas” to increase credit union services to 
individuals of modest means. Despite increased credit union 
participation in these programs and the expansion of community 
charters, the 2004 and 2001 Survey of Consumer Finances indicated that 
credit unions lagged behind banks in serving low- and moderate-income 
households. NCUA officials told GAO that, given the nascent nature of 
its two initiatives and the relatively recent shift to community 
charters, they did not yet expect observable changes in the data. Also, 
NCUA recently has undertaken a pilot effort to collect data on the 
income characteristics of credit union members. Because limited data 
exist on the extent to which credit unions serve those of modest means, 
any assessment would be enhanced if NCUA were to move beyond its pilot 
and systematically collect income data. 

Based on GAO analysis, credit unions typically had more favorable rates 
than banks, particularly for consumer loans. For example, credit unions 
auto loans were 1 to 2 percentage points lower than similarly sized 
banks, on average. However, it was not clear the extent that the more 
favorable rates fully reflected the tax subsidy that credit unions 
receive by tax-exemption. 

The Internal Revenue Service (IRS) has been reviewing state-chartered 
credit union activities (federal credit unions are exempt) to determine 
compliance with unrelated business income tax (UBIT) requirements, but 
such determinations are difficult due to complicated criteria and 
because many credit unions file group rather than individual returns. 
IRS stated that it plans to issue technical guidance in the first 
quarter of 2007 that the agency believes will help ensure credit union 
compliance with UBIT. 

Finally, credit union executive compensation is not transparent. 
Federal credit unions, unlike other tax-exempt organizations, do not 
file information returns, which contain data on executive compensation, 
with IRS. NCUA is collecting compensation data as part of its pilot, 
but it is unclear whether NCUA will conduct future reviews. NCUA 
officials noted a number of alternatives that could be used to increase 
transparency, such as requiring federal credit unions to provide 
compensation information in call reports or require that credit unions 
disclose compensation data at annual meetings. 

What GAO Recommends: 

To improve transparency, GAO recommends that the NCUA Chairman 
systematically track and monitor the progress of federal credit unions 
in serving those of modest means and require disclosure of credit union 
senior executive compensation. NCUA agreed with our recommendations but 
had some concerns with the report. GAO addressed these concerns in the 
agency comments section of the report. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-29]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Yvonne Jones at (202) 512-
8678 or jonesy@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

NCUA Rules Interpreting CUMAA Appear to Have Fueled Expansion of 
Community-Chartered Credit Unions: 

NCUA Programs Target Individuals of Low-and Moderate-Income, but 
Limited Data Preclude an Evaluation of Actual Service to Those 
Individuals: 

Credit Unions Offered Better Interest Rates on Some Products, but the 
Extent to Which the Benefits of Tax-Exempt Status Have Been Passed to 
Members Is Unclear: 

Lack of Guidance and Criteria for Applying UBIT to State Credit Union 
Activities Makes Determining Compliance with the Requirement Difficult 

Alternatives Exist to Improve the Transparency of Credit Union 
Executive and Director Compensation: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Effects of CUMAA and NCUA Regulations and NCUA Efforts to Serve Low-and 
Moderate-Income Individuals: 

Comparison of Interest Rates Offered by Credit Unions With Those at 
Comparably Sized Banks: 

Issues Related to the Application of UBIT to Credit Unions: 

Information on Transparency and Compensation of Executive Compensation 

Appendix II: Analyses of Survey of Consumer Finances Data, 2001 and 
2004: 

Appendix III: Comparison of Interest Rates at Credit Unions and Banks: 

Appendix IV: Selected Salary Surveys for Credit Union and Bank 
Executives: 

Appendix V: Comments from the National Credit Union Administration: 

GAO Comments: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Number, Members, and Assets of Federal Credit Unions by 
Charter Type, from 2000 through 2005: 

Table 2: Federal Credit Union Conversions to Community Charters, from 
2000 through 2005: 

Table 3: Number of Credit Unions Approved to Expand into Underserved 
Areas, 2000-2005: 

Table 4: UBIT Income Declared and Taxes Paid by State-Chartered Credit 
Unions, 2000-2004: 

Table 5: Definition of Income Categories Used for Community 
Reinvestment Act Examinations: 

Table 6: Peer (Asset) Group Definitions, Used in Comparisons of 
Interest Rates between Credit Unions and Banks: 

Table 7: Percentages of Households Classified as Using Banks or Credit 
Unions, 2001 and 2004: 

Table 8: Median Income Benchmarks Used for Primary (Household) and 
Additional (Family) Analyses of 2001 and 2004 SCF Data: 

Table 9: Income Categories for Primary (Household) and Additional 
(Family) Analyses of 2001 and 2004 SCF Data: 

Table 10: Percentages in Each Income Category for Primary (Household) 
Analysis by Customer Type, 2001 SCF Data: 

Table 11: Percentages in Each Income Category for Primary (Household) 
Analysis by Customer Type, 2004 SCF Data: 

Table 12: Percentages in Each Income Category for Additional (Family) 
Analysis by Customer Type, 2001 SCF Data: 

Table 13: Percentages in Each Income Category for Additional (Family) 
Analysis by Customer Type, 2004 SCF Data: 

Table 14: Median Income within Each Income Category for Primary 
(Household) Analysis by Customer Type, 2001 SCF Data: 

Table 15: Median Income within Each Income Category for Primary 
(Household) Analysis by Customer Type, 2004 SCF Data: 

Table 16: Median Income within Each Income Category for Additional 
(Family) Analysis by Customer Type, 2001 SCF Data: 

Table 17: Median Income within Each Income Category for Additional 
(Family) Analysis by Customer Type, 2004 SCF Data: 

Figures Figures: 

Figure 1: Low Income Credit Union Growth, 2000-2005: 

Figure 2: Comparison of Income Levels of Credit Union and Bank 
Customers, from 2001 and 2004 SCF Data: 

Figure 3: Regular Savings Account Rates of Credit Unions and Banks with 
Assets of $100 Million or Less and Assets Greater than $1 Billion, from 
2000 through 2005: 

Figure 4: Sixty-Month New Car Loan Rates of Credit Unions and Banks 
with Assets of $100 Million or Less and Assets Greater than $1 Billion, 
from 2000 through 2005: 

Figure 5: Thirty-Year Mortgage Loan Fixed Rates of Credit Unions and 
Banks with Assets of $100 Million or Less and Assets Greater than $1 
Billion, from 2000 through 2005: 

Figure 6: Compensation Information Filed in IRS Form 990: 

Figure 7: Comparison of Interest Rates for Savings Products at December 
31, 2000, by Asset Size: 

Figure 8: Comparison of Interest Rates for Savings Products at December 
31, 2001, by Asset Size: 

Figure 9: Comparison of Interest Rates for Savings Products at December 
31, 2002, by Asset Size: 

Figure 10: Comparison of Interest Rates for Savings Products at 
December 31, 2003, by Asset Size: 

Figure 11: Comparison of Interest Rates for Savings Products at 
December 31, 2004, by Asset Size: 

Figure 12: Comparison of Interest Rates for Savings Products at 
December 31, 2005, by Asset Size: 

Figure 13: Comparison of Interest Rates of Consumer Loans at December 
31, 2000, by Asset Size: 

Figure 14: Comparison of Interest Rates of Consumer Loans at December 
31, 2001, by Asset Size: 

Figure 15: Comparison of Interest Rates of Consumer Loans at December 
31, 2002, by Asset Size: 

Figure 16: Comparison of Interest Rates of Consumer Loans at December 
31, 2003, by Asset Size: 

Figure 17: Comparison of Interest Rates of Consumer Loans at December 
31, 2004, by Asset Size: 

Figure 18: Comparison of Interest Rates of Consumer Loans at December 
31, 2005, by Asset Size: 

Figure 19: Comparison of Interest Rates of Mortgage Products at 
December 31, 2000, by Asset Size: 

Figure 20: Comparison of Interest Rates of Mortgage Products at 
December 31, 2001, by Asset Size: 

Figure 21: Comparison of Interest Rates of Mortgage Products at 
December 31, 2002, by Asset Size: 

Figure 22: Comparison of Interest Rates of Mortgage Products at 
December 31, 2003, by Asset Size: 

Figure 23: Comparison of Interest Rates of Mortgage Products at 
December 31, 2004, by Asset Size: 

Figure 24: Comparison of Interest Rates of Mortgage Products at 
December 31, 2005, by Asset Size: 

Figure 25: Credit Union Executive Average Base Salaries for 2005: 

Figure 26: Bank Executive Average Base Salaries in 2004: 

Abbreviations: 

ABA: American Banker's Association: 

CRA: Community Reinvestment Act: 

CUMAA: Credit Union Membership Access Act: 

CUSO: credit union service organizations: 

FFIEC: Federal Financial Institutions Examination Council: 

IRS: Internal Revenue Service: 

LICU: Low Income Credit Union: 

MSA: Metropolitan Statistical Area: 

NASCUS: National Association of State Credit Union Supervisors: 

NCUA: National Credit Union Administration: 

SCF: Survey of Consumer Finances: 

SEC: Securities and Exchange Commission: 

UBIT: unrelated business income tax: 

November 30, 2006: 

The Honorable William M. Thomas: 
Chairman: 
Committee on Ways and Means: 
House of Representatives: 

Dear Mr. Chairman: 

Changes in credit union membership restrictions and the blurring of 
distinctions in the products and services offered by credit unions and 
other depository institutions, as well as concerns about the extent to 
which credit unions are serving people of modest means, have resulted 
in questions about the tax-exempt status of credit unions. Unlike 
banks, credit unions are (1) not-for-profit entities that build capital 
by retaining earnings (they do not issue capital stock); (2) member- 
owned cooperatives run by boards elected by the membership; (3) subject 
to field of membership requirements that limit membership to persons 
sharing certain circumstances, such as a common bond of occupation or 
association; and (4) exempt from federal income tax. As a result of 
recent legal and regulatory developments, the National Credit Union 
Administration (NCUA) has approved progressively larger geographic- 
based fields of membership for federal credit unions, including areas 
as large as whole counties or major metropolitan areas. Additionally, 
credit unions are increasingly offering products and services similar 
to those provided by banks, such as real estate and business loans. 
With the expansion of credit union membership and products, concerns 
have been raised whether the tax-exempt status of credit unions 
provides an unfair competitive advantage over comparably sized banks 
and the extent to which credit unions remain unique in terms of the 
population they serve versus that served by other depository 
institutions. 

Credit unions can be chartered by the federal government or by a state 
government. NCUA has oversight authority for federally chartered credit 
unions; the states have primary oversight responsibility for state- 
chartered credit unions. NCUA also provides share insurance to all 
federally chartered and most state-chartered credit unions. As of 
December 2005, there were nearly 8,700 federally insured credit unions-
-about 5,400 federally chartered and 3,300 state-chartered--with about 
$679 billion in total assets.[Footnote 1] 

Under the Federal Credit Union Act, federal charters are subject to a 
field of membership requirement.[Footnote 2] The act provides for three 
types of federal credit union charter--single common bond, multiple 
common bond, and community.[Footnote 3] A single common-bond credit 
union has a field of membership that comprises one group having a 
common bond of occupation or association. In a multiple common-bond 
charter, the field of membership comprises more than one group, with 
each group having a common bond of occupation or association (within 
the group).[Footnote 4] In a community charter, the membership 
comprises persons or organizations within a "well-defined local 
community, neighborhood, or rural district." 

Although they are exempt from federal income tax, both federally and 
state-chartered credit unions do pay other taxes at the federal and 
state levels. For example, both types of credit unions pay federal 
employment taxes such as social security tax on behalf of their 
employees. According to the National Association of State Credit Union 
Supervisors (NASCUS), most states impose real property taxes on state- 
chartered credit unions; and in a few states, federally chartered 
credit unions are subject to state real property taxes.[Footnote 5] 

As part of the House Ways and Means Committee's continuing oversight of 
the tax-exempt sector, you asked us to review a variety of credit union 
issues.[Footnote 6] The objectives of this study were to (1) assess the 
effect of the 1998 Credit Union Membership Access Act (CUMAA) on 
federal credit union membership and charter expansion; (2) review 
NCUA's efforts to expand credit union services to low-and moderate- 
income individuals; (3) compare rates offered by credit unions with 
rates at comparably sized banks, as one indicator of how tax-exemption 
might benefit credit union members; (4) discuss issues associated with 
the application of the federal unrelated business income tax (UBIT) to 
credit unions; and (5) assess the transparency of credit union 
executives and board member compensation. 

To assess the effect of CUMAA on federal credit union membership and 
charter expansion, we obtained data from NCUA regarding charter types 
and membership, including data on recent new charter approvals, 
conversions, and expansions.[Footnote 7] To review NCUA efforts to 
expand credit union services to low-and moderate-income individuals, we 
obtained information from NCUA on its low-income credit union program 
and recent underserved area expansions.[Footnote 8] We also obtained 
and analyzed the Board of Governors of the Federal Reserve System's 
(Federal Reserve) 2004 Survey of Consumer Finances (SCF) to assess the 
extent to which credit union members were of low-and moderate-income 
households and discussed with NCUA officials their effort to measure 
the income levels of credit union members. To compare rates offered by 
credit unions with those of comparably sized banks, we obtained and 
reviewed rate data on more than 15 loan and savings products to 
identify any systematic differences. To facilitate our discussion of 
issues related to the application of UBIT to credit unions, we reviewed 
provisions of the Internal Revenue Code, Federal Credit Union Act, 
judicial decisions, and Internal Revenue Service (IRS) documents 
concerning the unrelated business income tax (UBIT) and the taxation of 
credit unions. We also obtained and analyzed IRS data regarding its 
activities to identify state-chartered credit union activities subject 
to UBIT. To provide information on transparency of compensation of 
credit union executives and board members, we discussed compensation 
reporting requirements of credit unions with IRS and obtained publicly 
available data regarding the compensation of board members and senior 
executives of credit unions and banks. Appendix I provides additional 
information about our scope and methodology. We conducted our work in 
Washington, D.C., and San Francisco from November 2005 through November 
2006 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

Since the passage of CUMAA in 1998 and subsequent changes in NCUA 
regulations, the credit union industry has experienced dramatic growth 
in the number of credit unions with community-based charters. NCUA 
revised its regulations after the passage of CUMAA, making it easier 
for federal credit unions to qualify for community charters that served 
large geographic areas such as entire counties. From 2000 through 2005, 
the overall number of federally chartered credit unions declined, but 
the number of federal community-chartered credit unions more than 
doubled (from 523 to 1,115). The assets of all three types of federal 
credit unions grew by about $140 billion between 2000 and 2005, and the 
assets held by community credit unions nearly quadrupled (from $27.1 to 
$104.4 billion). Charter conversions largely drove the increase in 
numbers of community credit unions, with more than 90 percent of the 
growth in community charters resulting from conversions by multiple- 
bond credit unions. According to NCUA officials, the changes were 
necessary to maintain competitiveness against more expansive membership 
regulations in some state charters, enhance the safety and soundness of 
credit unions, and allow credit unions to serve more diverse 
memberships, including individuals of modest means. 

Although NCUA has taken actions to make credit union services available 
to individuals of modest means, information that directly measures the 
income levels of credit union members continues to be limited. In 
addition to looking at community chartering as a way to serve those of 
modest means, NCUA has established two initiatives to enhance the 
availability of credit union services to individuals of modest means-- 
the low-income credit union program and permitting the adoption by 
credit unions of "underserved areas," regardless of the credit union's 
location. Federal credit union participation in both of the initiatives 
has risen since 2000--for example, federal credit unions receiving NCUA 
approval to expand into underserved areas increased from 40 in 2000 to 
641 at the end of 2005. However, the most recent available information 
on the income of credit union members--the Federal Reserve's 2004 SCF-
-indicated that credit unions continued to lag behind banks in the 
percentage of their customers or members that were of low-and moderate- 
income households. Our analysis of the 2004 SCF indicated that 31 
percent of households that only and primarily used credit unions were 
of modest means versus 41 percent for households that only and 
primarily used banks. As an approximation of income levels, SCF data 
have certain limitations for measuring the income characteristics of 
credit union members and should be interpreted with caution. NCUA 
commented that because of the relative newness of community charter 
expansion and observed increase in participation of the low-income and 
underserved area efforts, it would take time before changes in the 
income profiles of credit union members could be reflected in the data. 
Because of the limitations of available data such as the SCF, NCUA has 
undertaken a pilot program to estimate the income levels of credit 
union members. However, because of limitations in the sample size, the 
survey will not allow NCUA to make statistically valid conclusions on 
member income by specific charter type or about specific services 
provided to members of various incomes. 

Our analysis of interest rates for 15 loan and savings products 
indicated that credit unions seem to offer more favorable rates than 
those of comparably sized banks, particularly for consumer loans. For 
example, rates that credit unions charged for car loans averaged about 
1 to 2 percentage points lower than rates offered by similarly sized 
banks, and credit union rates averaged 0.4 percentage points higher for 
regular savings accounts. This difference was slightly more pronounced 
as the size of the institutions increased. In contrast, rates that 
credit unions and banks charged for mortgage loans were virtually the 
same; and, in limited cases, banks offered better mortgage rates on 
average than similarly sized credit unions. However, our analysis of 
deposit and loan rate data does not fully identify how the tax- 
exemption of credit unions might benefit credit union members. For 
example, tax-exemption may enable credit unions to reduce fees they 
charge for services provided to members. In addition, credit unions can 
finance additional services and add to desired or required reserves 
through untaxed retained income. 

IRS has been reviewing many types of state-chartered credit union 
activities to determine if they should be subject to UBIT. Groups 
representing state-chartered credit unions and the Credit Union 
National Association have stated that IRS has not provided sufficient 
guidance on what credit union activities are or are not subject to 
UBIT. According to IRS officials, IRS is planning to issue technical 
advice on credit union activities subject to UBIT. State-chartered 
credit unions paid more UBIT in 2004 than in 2000, but many state- 
chartered credit unions are permitted to be included in a group rather 
than an individual information return--Return of Organization Exempt 
from Income Tax (Form 990). The practice of providing aggregate returns 
effectively makes it more difficult for IRS to scrutinize state- 
chartered credit union operations to determine whether they are subject 
to UBIT. However, IRS officials told us that the additional technical 
advice the agency will be providing will specify its position on credit 
union activites that are subject to UBIT and should improve credit 
union compliance with the statute. 

Executive compensation for federal credit unions is not transparent, 
largely because federal credit unions are not required to publicly file 
information on executive compensation. The importance of transparency 
and disclosure of executive compensation have become an important topic 
as highlighted by the Securities and Exchange Commission's (SEC) recent 
rule making for publicly held companies.[Footnote 9] Similarly, for not-
for-profits, the disclosure of such information helps support oversight 
of these tax-exempt entities. However, unlike most other tax- exempt 
organizations, federal credit unions are not required to provide IRS 
with Form 990s that contain publicly disclosed information such as 
executive compensation. NCUA legal opinions have stated that member 
access to credit union records is generally a matter of state law. In 
those opinions, NCUA observed that members of federal credit unions are 
owners of the institution, similar to shareholders of corporations, so 
the members should look to state corporate law on matters such as 
access to federal credit union records. In one opinion, the NCUA 
attorney referred to the general rule in most states that shareholders 
are entitled to inspect corporate minutes and other records for 
appropriate purposes. However, it was not clear to what extent credit 
unions or their members were aware of this general right or how 
difficult or easy it would be for credit union members to obtain 
executive compensation data. We identified a few credit union and bank 
trade group surveys that address executive compensation for their 
respective industries. While these surveys provided an indication of 
compensation patterns, the surveys generally had methodological 
limitations--self-selected samples, small sample sizes, or incomplete 
information on total compensation and benefits--that precluded a direct 
comparison of credit union executive compensation with that of 
similarly sized banks. As part of its pilot program to obtain 
information on the income characteristics of credit union customers, 
NCUA has also collected data on credit union executive compensation and 
has reported the average salaries of specific positions with the credit 
union industry. However, the information, which is stratified into two 
subsets, reported salary information for (1) credit unions with assets 
less than $50 million and (2) credit unions with assets greater than 
$50 million. Additionally, this information only provides a snapshot of 
executive compensation for a single time period. Finally, NCUA 
officials told us that they are exploring various options to provide 
greater transparency in credit union executive compensation, such as 
amending NCUA's call report data to require federal credit unions to 
submit compensation and benefit data for senior executive officers or 
requiring that credit unions make credit union salary information 
available to their members for inspection at their public meetings. 

This report includes two recommendations to NCUA's Chairman to 
systematically track the performance of federal credit unions in 
providing financial services to members of modest means and improve the 
transparency of credit union executive compensation to enhance 
accountability of credit unions to the public and to their members. 

We provided a draft of this report to the Chairman of NCUA and the 
Commissioner of IRS for their review and comment. We received written 
comments from NCUA that are summarized below and reprinted in appendix 
V. In addition, we received technical comments from IRS that have been 
incorporated into this report as appropriate. In its written comments, 
NCUA indicated that the agency's staff have recommended that the NCUA 
board consider taking actions consistent with the recommendations made 
in our report. However, NCUA indicated in its comment letter that it 
had concerns with certain aspects of the draft report. Specifically, 
NCUA's letter stated that it was inaccurate and inappropriate to 
measure the success of federally chartered credit unions in serving 
persons of modest means by reference only to the low-and moderate- 
income categories associated with the Community Reinvestment Act (CRA). 
Additionally, NCUA's letter stated that our income category benchmarks 
were inconsistent with the specific definitions used by the other 
federal financial regulators for CRA compliance. NCUA's letter also 
stated that the SCF was not designed for reliable income comparisons 
between credit union members and bank customers. As we noted in the 
report, neither the Federal Credit Union Act nor NCUA have established 
definitions as to what constitutes modest means. Thus, consistent with 
our 2003 report, we used low-and moderate-income households as a proxy 
for persons of modest means for the purposes of our analysis. Our 
analysis not only included comparisons between credit unions and banks 
of low-and moderate-income households but also middle and upper income 
households for both the 2001 and 2004 SCF. This analysis shows that 
between 2001 and 2004 credit unions continued to serve a higher 
proportion of middle-and upper-income households and a smaller 
proportion of low-and moderate-income households than did banks. The 
primary difference between our income categories and those used for CRA 
purposes was the use of national rather than local Metropolitan 
Statistical Area (MSA) median income as a benchmark for the various 
income categories. We use the national measure since the SCF is a 
national survey, and we did not have sufficient geographic information 
to conduct a MSA-level analysis. While we agree that the SCF was not 
specifically designed to conduct comparative analyses of income levels 
of bank and credit union customers, the SCF provides the best data 
currently available to undertake such a comparison. SCF is a respected 
source of publicly available data on financial institution and consumer 
demographics that is nationally representative and was the only 
comprehensive source of publicly available data that we could identify 
with information on financial institutions and consumer demographics. 
Additional NCUA comments are discussed at the end of this report and in 
appendix V. 

Background: 

Both federally and state-chartered credit unions are exempt from 
federal income taxes.[Footnote 10] However, their exempt status arises 
from different provisions of federal law. Federal credit unions are 
specifically exempt from federal and state income taxes under a 
provision of the Federal Credit Union Act.[Footnote 11] State-chartered 
credit unions are exempt under a provision of the Internal Revenue Code 
that describes as exempt, "Credit unions without capital stock 
organized and operated for mutual purposes and without 
profit."[Footnote 12] The code also imposes UBIT on state-chartered 
credit unions, but not on their federally chartered 
counterparts.[Footnote 13] 

The tax-exempt status of credit unions originally was predicated on the 
similarity of credit unions and mutual financial institutions. Section 
11(a)(4) of the Revenue Act of 1916, the statutory forerunner of 
section 501(c)(14)(A), exempted from federal income tax "cooperative 
banks without capital stock organized and operated for mutual purposes 
and without profit." The exemption of credit unions stems from an 
opinion of the Attorney General, 31 O.A.G. 176 (1917), holding that 
credit unions organized under the laws of Massachusetts were so similar 
to cooperative banks as to come within the scope of section 11(a)(4). 
IRS regulations subsequently applied this ruling to credit unions 
generally.[Footnote 14] 

While other institutions lost their exemption in the Revenue Act of 
1951, Congress specifically retained the exemption for credit unions by 
removing cooperative banks, savings and loan societies, and building 
and loan associations from exemption and inserting credit unions in 
their place.[Footnote 15] The Senate Finance Committee report 
accompanying the Revenue Act of 1951 stated that the exemption of 
mutual savings banks was repealed to establish parity with other 
banking institutions because the savings banks had become functionally 
similar to those other institutions.[Footnote 16] According to the 
Senate report, tax-exempt status gave mutual savings banks the 
advantage of being able to finance growth out of untaxed retained 
earnings, while competing corporations (commercial banks) paid tax on 
income retained by the corporation. The report stated that the 
exemptions for savings and loan associations had been repealed on the 
same ground. The report did not state why the tax- exempt status of 
credit unions was preserved. 

Credit unions are an important, but relatively small segment of the 
financial industry. According to NCUA and Federal Deposit Insurance 
Corporation data, federally and state-chartered credit unions 
represented 7.5 percent of all deposits and shares insured by the 
federal government as of December 31, 2005. Additionally, credit unions 
typically are much smaller than banks and thrifts in terms of total 
assets. For example, NCUA data indicated that approximately 88 percent 
of federally chartered credit unions had $100 million or less in assets 
with 83 percent having assets less than $50 million as of September 30, 
2005. According to NCUA, the average size of a federally chartered 
credit union was $73.2 million in total assets and the median asset 
size was $11 million. 

NCUA Rules Interpreting CUMAA Appear to Have Fueled Expansion of 
Community-Chartered Credit Unions: 

Since the passage of CUMAA in 1998 and subsequent NCUA rule changes, 
NCUA has approved community charters with increasingly larger 
geographic fields of membership--for example, covering entire cities or 
multiple counties. Since 2000, community-chartered credit unions have 
nearly tripled their membership and nearly quadrupled their assets. 
Most of the new community charters approved between 2000 and 2005 were 
charter conversions by multiple-bond credit unions rather than new 
credit unions. According to NCUA, community charters offer credit 
unions greater opportunity than single-and multiple-bond credit unions 
to diversify their membership base, thereby contributing to the 
institution's economic viability and ability to serve all segments of 
the community, including those of modest means. 

NCUA Regulations Interpreting CUMAA Set the Stage for Growth of 
Community Charter Credit Unions: 

CUMAA is the most recent statute affecting field of membership 
requirements of federally chartered credit unions. In 1998, the Supreme 
Court determined that NCUA had erroneously interpreted the Federal 
Credit Union Act to permit federally chartered credit unions to have 
multiple common bonds.[Footnote 17] In response, Congress passed a 
provision in CUMAA to specifically permit multiple-bond credit unions 
subject to a general limitation on the number of members sharing a 
particular common bond. Also in CUMAA, Congress amended the provision 
of the act permitting the federal community charter by changing the 
description of its field of membership from "groups within a well- 
defined neighborhood, community, or rural district" to "persons or 
organizations within a well-defined local community, neighborhood, or 
rural district."[Footnote 18] 

Subsequent to the passage of CUMAA, NCUA revised its regulations to 
approve community charters consisting of larger geographic areas of 
coverage and potential members. For example, NCUA recently approved one 
credit union for a community charter covering the entirety of Los 
Angeles County. Thus, an estimated 9.6 million persons who live, 
worship, and go to school or work in the county and businesses and 
other legal entities within county boundaries qualify for membership in 
this credit union.[Footnote 19] We reported in 2003 that previous NCUA 
regulations required credit unions to document that residents of a 
proposed community area interacted or had common interests.[Footnote 
20] Credit unions seeking to serve a single political jurisdiction 
(e.g., a city or a county) with more than 300,000 residents were 
required to submit more extensive paper work. However, NCUA revised its 
regulations in 2003, defining a local community as any city, county, or 
political equivalent in a single political jurisdiction, regardless of 
population size and eliminated the documentation requirements. 

As shown in table 1, the number of community-chartered federal credit 
unions doubled from 2000 through 2005, while the number of multiple- 
bond credit unions declined by about 22 percent. In spite of the recent 
decline, multiple-bond credit unions remain the largest group of 
federally chartered credit unions in number and in total membership and 
assets. However, community-chartered credit unions overtook multiple- 
bond credit unions as the largest of the three federal charter types in 
terms of average membership and average size in terms of assets 
beginning in 2003. 

Table 1: Number, Members, and Assets of Federal Credit Unions by 
Charter Type, from 2000 through 2005: 

Federal Credit Unions: Number: Single; 
2000: 2,512; 
2001: 2,401; 
2002: 2,256; 
2003: 2,106; 
2004: 1,987; 
2005: 1,893. 

Federal Credit Unions: Number: Multiple; 
2000: 3,045; 
2001: 2,933; 
2002: 2,842; 
2003: 2,684; 
2004: 2,534; 
2005: 2,385. 

Federal Credit Unions: Number: Community; 
2000: 523; 
2001: 783; 
2002: 855; 
2003: 986; 
2004: 1,051; 
2005: 1,115. 

Federal Credit Unions: Number: All charters; 
2000: 6,080; 
2001: 6,117; 
2002: 5,953; 
2003: 5,776; 
2004: 5,572; 
2005: 5,393. 

Federal Credit Unions: Actual members (in millions): Single; 
2000: 7.0; 
2001: 7.1; 
2002: 7.0; 
2003: 7.0; 
2004: 6.8; 
2005: 7.3. 

Federal Credit Unions: Actual members (in millions): Multiple; 
2000: 30.8; 
2001: 29.5; 
2002: 29.1; 
2003: 27.8; 
2004: 26.8; 
2005: 26.0. 

Federal Credit Unions: Actual members (in millions): Community; 
2000: 5.2; 
2001: 7.2; 
2002: 8.4; 
2003: 11.4; 
2004: 13.3; 
2005: 14.6. 

Federal Credit Unions: Actual members (in millions): All charters; 
2000: 42.9; 
2001: 43.8; 
2002: 44.6; 
2003: 46.2; 
2004: 46.9; 
2005: 47.9. 

Federal Credit Unions: Assets (in billions): Single; 
2000: $43.3; 
2001: $49.4; 
2002: $54.4; 
2003: $58.9; 
2004: $62.1; 
2005: $70.8. 

Federal Credit Unions: Assets (in billions): Multiple; 
2000: $168.8; 
2001: $180.2; 
2002: $196.6; 
2003: $202.2; 
2004: $204.7; 
2005: $202.6. 

Federal Credit Unions: Assets (in billions): Community; 
2000: $27.1; 
2001: $40.5; 
2002: $50.3; 
2003: $75.4; 
2004: $91.9; 
2005: $104.4. 

Federal Credit Unions: Assets (in billions): All charters; 
2000: $239.2; 
2001: $270.1; 
2002: $301.2; 
2003: $336.6; 
2004: $358.7; 
2005: $377.8. 

Federal Credit Unions: Average membership (in thousands): Single; 
2000: 2.8; 
2001: 2.9; 
2002: 3.1; 
2003: 3.3; 
2004: 3.4; 
2005: 3.9. 

Federal Credit Unions: Average membership (in thousands): Multiple; 
2000: 10.1; 
2001: 10.1; 
2002: 10.3; 
2003: 10.3; 
2004: 10.6; 
2005: 10.9. 

Federal Credit Unions: Average membership (in thousands): Community; 
2000: 9.9; 
2001: 9.2; 
2002: 9.8; 
2003: 11.6; 
2004: 12.6; 
2005: 13.1. 

Federal Credit Unions: Average membership (in thousands): All charters; 
2000: 7.1; 
2001: 7.2; 
2002: 7.5; 
2003: 8.0; 
2004: 8.4; 
2005: 8.9. 

Federal Credit Unions: Average assets (in millions): Single; 
2000: $17.3; 
2001: $20.6; 
2002: $24.1; 
2003: $28.0; 
2004: $31.3; 
2005: $37.4. 

Federal Credit Unions: Average assets (in millions): Multiple; 
2000: $55.4; 
2001: $61.4; 
2002: $69.2; 
2003: $75.3; 
2004: $80.8; 
2005: $85.0. 

Federal Credit Unions: Average assets (in millions): Community; 
2000: $51.8; 
2001: $51.8; 
2002: $58.8; 
2003: $76.5; 
2004: $87.5; 
2005: $93.6. 

Federal Credit Unions: Average assets (in millions): All charters; 
2000: $39.3; 
2001: $44.2; 
2002: $50.6; 
2003: $58.3; 
2004: $64.4; 
2005: $70.1. 

Source: NCUA. 

[End of table] 

Growth of Federal Community Charter Credit Unions Has Been the Result 
of Charter Conversions Rather than New Credit Union Charter Approvals: 

To a large degree, the increase in number, membership, and assets of 
community charter credit unions can be attributed to charter 
conversions rather than to new credit union charter approvals. Between 
2000 and 2005, NCUA approved 616 applications for federal community 
charters. Of these 616 approved federal community charters, 600 were 
conversions from single-or multiple-bond credit unions while only 16 
were for new credit union charters. As shown in table 2, the vast 
majority of the conversions to community charters--549 or about 92 
percent--involved multiple-bond credit unions. 

Table 2: Federal Credit Union Conversions to Community Charters, from 
2000 through 2005: 

Year: 2000; 
From single-bond: 8; 
From multiple-bond: 81; 
Total: 89. 

Year: 2001; 
From single-bond: 10; 
From multiple-bond: 83; 
Total: 93. 

Year: 2002; 
From single-bond: 5; 
From multiple-bond: 86; 
Total: 91. 

Year: 2003; 
From single-bond: 14; 
From multiple-bond: 121; 
Total: 135. 

Year: 2004; 
From single-bond: 5; 
From multiple-bond: 75; 
Total: 80. 

Year: 2005; 
From single-bond: 9; 
From multiple-bond: 103; 
Total: 112. 

Year: Total; 
From single-bond: 51; 
From multiple-bond: 549; 
Total: 600. 

Source: NCUA. 

[End of table] 

According to NCUA, Community Charters Allow Federal Charters to Remain 
Viable and Can Provide Opportunities to Diversify Membership: 

NCUA officials indicated that changes in chartering policy have been 
triggered by factors such as the continued viability of federal credit 
unions in a changing economic environment and financial industry 
developments. NCUA believes that community charter expansion allows 
federal credit unions to attract a more diverse membership base. 
According to the officials, this in turn can enhance a credit union's 
economic viability, safety and soundness, as well as provide greater 
opportunities to serve members of modest means. For example, officials 
explained that single-and multiple-bond credit unions often tend to be 
organized around employer or occupationally based associations, which 
in turn creates greater economic risk exposure since the membership 
base is intertwined with the economic cycles of a particular employer 
or occupation.[Footnote 21] Additionally, NCUA officials noted that 
employer or occupational bonds result in a greater concentration of 
members with middle rather than lower incomes. Since community charters 
are organized around geographically based associations, credit unions 
would be able to provide individuals from a broad range of occupations 
and income levels in these communities with access to their products 
and services. However, community based credit unions would be 
vulnerable to regional downturns in the economy. 

NCUA Programs Target Individuals of Low-and Moderate-Income, but 
Limited Data Preclude an Evaluation of Actual Service to Those 
Individuals: 

NCUA has established and increased participation in two programs and 
policies that are specifically designed to make credit union services 
more available to individuals of low-and moderate-income. NCUA's Low 
Income Credit Union (LICU) program is designed to assist credit unions 
that can demonstrate that a majority of their members have a median 
household income less than 80 percent of the national household income 
or make less than 80 percent of the average for all wage earners. NCUA 
also has made it easier for federal credit unions, regardless of 
location, to expand their fields of membership into underserved areas 
(areas experiencing economic difficulty). Although federal credit 
unions increasingly have participated in these efforts in recent years, 
lack of data on the income levels of credit union members has made it 
difficult to determine how effective these programs have been in 
providing services to individuals of modest means. But, the limited 
existing data on income levels of credit union customers suggest that 
credit unions continue to lag behind banks in the proportion of 
customers that are of low-and moderate-income. NCUA has undertaken a 
pilot effort to capture information on the income characteristics of 
credit union members, but the data will not allow NCUA to reach 
statistically valid conclusions by charter type. 

NCUA Encouraged Growth of Low Income Credit Unions and Adoption of 
Underserved Areas, but Cannot Quantify Impact of Programs on Use of 
Credit Union Services by Individuals of Modest Means: 

As we reported in 2003, it has been generally accepted that credit 
unions have a historical emphasis on serving people with "small" or 
"modest" means. Congressional findings contained in CUMAA linked the 
tax-exempt status of credit unions, in part, to their "specified 
mission of meeting the credit and savings needs of consumers, 
especially persons of modest means."[Footnote 22] NCUA incorporated 
this emphasis into its current strategic plan, which gives its mission 
as "facilitating the availability of credit union services to all 
eligible consumers, especially those of modest means through a 
regulatory environment that fosters a safe and sound credit union 
system." According to NCUA officials, the changes in chartering 
requirements should allow credit unions to serve a more diverse 
membership, including those of modest means. 

In addition to approving more community charters, NCUA has encouraged 
credit union activity in other areas in an attempt to make credit union 
services more available to low-income individuals and underserved 
areas. According to NCUA, its LICU program is designed to assist credit 
unions serving predominantly low-income members in obtaining technical 
and financial services.[Footnote 23] Credit unions that receive a low- 
income designation receive certain opportunities, such as the 
following: 

* greater authority to accept deposits from nonmembers such as 
voluntary health and welfare organizations; 

* access to low-interest loans, deposits, and technical assistance 
through participation in NCUA's Community Development Revolving Loan 
Fund; 

* ability to offer uninsured secondary capital accounts and include 
these accounts in the credit union's net worth for the purposes of 
meeting its regulatory capital requirements;[Footnote 24] and: 

* a waiver of the aggregate loan limit for member business loans. 

From 2000 through 2005, the number of LICUs grew from 632 to 1,032, an 
increase of more than 63 percent (see fig. 1). 

Figure 1: Low Income Credit Union Growth, 2000-2005: 

[See PDF for image] - graphic text: 

Source: NCUA. 

[End of figure] - graphic text: 

Credit union expansion into underserved areas also has increased in 
recent years. From 1994 through 1998, NCUA rules permitted federal 
credit unions, regardless of charter type, to include residents in low- 
income communities and associations in their fields of membership. 

In 1998, CUMAA expressly recognized that multiple-bond credit unions 
would be authorized to serve persons or organizations within an area 
that was underserved. The Federal Credit Union Act defines an 
underserved area as a local community, neighborhood, or rural district 
that is an "investment area" as defined by the Community Development 
Banking and Financial Institutions Act of 1994--that is, experiencing 
poverty, low income, or unemployment.[Footnote 25] NCUA's Chartering 
and Field of Membership Manual (Interpretive Ruling and Policy 
Statement 03-1 or IRPS 03-1) allowed credit unions to include 
underserved areas in their fields of membership, without regard to 
location or changes to their charter type.[Footnote 26] For example, 
NCUA recently approved a credit union in the state of Maryland to serve 
residents within an area of Washington, D.C., determined to be 
"underserved." Between 2000 and 2005, the number of credit unions 
receiving NCUA approval to adopt underserved areas grew from 40 to 641. 
As shown in table 3, the largest proportion of the 641 credit unions 
approved through year-end 2005 were multiple-bond credit unions (410 or 
64 percent), followed by community-chartered credit unions (196 or 31 
percent). 

Table 3: Number of Credit Unions Approved to Expand into Underserved 
Areas, 2000-2005: 

Year-end: 2000; 
Multiple-bond federal credit unions with underserved areas: 22; 
Community-chartered federal credit unions with underserved areas: 17; 
Single-bond federal credit unions with underserved areas: 0; 
Total federal credit unions with approved underserved areas[A]: 40. 

Year-end: 2001; 
Multiple-bond federal credit unions with underserved areas: 120; 
Community-chartered federal credit unions with underserved areas: 66; 
Single-bond federal credit unions with underserved areas: 6; 
Total federal credit unions with approved underserved areas[A]: 196. 

Year-end: 2002; 
Multiple-bond federal credit unions with underserved areas: 238; 
Community-chartered federal credit unions with underserved areas: 127; 
Single-bond federal credit unions with underserved areas: 14; 
Total federal credit unions with approved underserved areas[A]: 386. 

Year-end: 2003; 
Multiple-bond federal credit unions with underserved areas: 314; 
Community-chartered federal credit unions with underserved areas: 150; 
Single-bond federal credit unions with underserved areas: 18; 
Total federal credit unions with approved underserved areas[A]: 489. 

Year-end: 2004; 
Multiple-bond federal credit unions with underserved areas: 369; 
Community-chartered federal credit unions with underserved areas: 170; 
Single-bond federal credit unions with underserved areas: 24; 
Total federal credit unions with approved underserved areas[A]: 570. 

Year-end: 2005; 
Multiple-bond federal credit unions with underserved areas: 410; 
Community-chartered federal credit unions with underserved areas: 196; 
Single-bond federal credit unions with underserved areas: 28; 
Total federal credit unions with approved underserved areas[A]: 641. 

Source: NCUA. 

[A] As of December 2005, seven state-chartered credit unions formerly 
had been federally chartered and had approved underserved areas. 

[End of table] 

However, recent changes in NCUA policies may limit the growth of the 
underserved areas program. In connection with a lawsuit instituted in 
November 2005, NCUA stopped permitting single-bond and community 
federal credit unions to include underserved areas in their fields of 
membership. This had the effect of allowing access only for multiple- 
bond credit unions, which is permitted specifically in a provision of 
the Federal Credit Union Act.[Footnote 27] In the lawsuit, the American 
Banker's Association (ABA) challenged NCUA's approval of community- 
chartered credit unions adding underserved areas to their field of 
membership. ABA argued that NCUA misinterpreted the Federal Credit 
Union Act by allowing a community federal credit union to expand into 
several communities in Utah. ABA contended that the Federal Credit 
Union Act allows multiple-bond credit unions, but not community- 
chartered credit unions, to add underserved areas to their fields of 
membership. In response, NCUA subsequently amended its chartering 
regulations to limit the adoption of underserved areas to multiple-bond 
credit unions. NCUA's final rule, incorporating these amendments, took 
effect on July 28, 2006.[Footnote 28] On July 20, 2006, ABA announced 
that it had agreed to dismiss its lawsuit. 

Despite the expansion into underserved areas and the LICU program, NCUA 
cannot specifically quantify the extent to which these programs have 
increased use of credit union services by individuals of modest means. 
As we reported in 2003 and will discuss in the following sections, 
limited data are available that specifically measure the income levels 
of credit union members and the services used by individuals of modest 
means. As a result, although NCUA data indicate increased adoption of 
underserved areas and increased participation in the LICU program, data 
do not exist to specifically show the extent to which these programs 
have increased services provided to individuals of modest means. 

Federal Reserve Survey Data Suggest that Credit Unions Continued to 
Serve a Lower Proportion of Low-and Moderate-Income Households than 
Banks: 

Despite the shift toward community charters and the increase in the 
number of credit unions participating in NCUA's low-income and 
underserved programs, our analysis of data from the Federal Reserve's 
2004 Survey of Consumer Finances (SCF) indicated that credit unions had 
a lower proportion of customers who were of low-and moderate-income 
than did banks.[Footnote 29] These results were similar to the results 
of our analysis of the Federal Reserve's 2001 SCF data, which we 
discussed in our 2003 report.[Footnote 30] 

We combined the 2004 SCF data into two main groups--households that 
only and primarily used credit unions (credit union customers) and 
households that only and primarily used banks (bank 
customers).[Footnote 31] We then computed the proportions of credit 
union customers and bank customers in each of these four income 
categories--low, moderate, middle, and upper. We based our income 
categories on criteria that financial regulators use to assess 
compliance with the Community Reinvestment Act, which is intended to 
encourage depository institutions to help meet the credit needs of the 
communities that they serve. Specifically, (1) a low-income household 
had less than 50 percent of the national median household income; (2) a 
moderate-income household had an income of at least 50 percent, but 
less than 80 percent, of the national median household income; (3) a 
middle-income household had an income of at least 80 percent, but less 
than 120 percent, of the national median household income; and (4) an 
upper-income household had an income of at least 120 percent of the 
national median household income. We estimated that 14 percent of 
credit union customers were of low-income and 17 percent were of 
moderate-income, compared with 24 percent and 16 percent for banks. We 
found the difference between the proportion of low-income customers at 
banks and credit unions to be statistically significant (that is, the 
evidence suggested that the difference between the two was not simply 
the result of chance). Moreover, we estimated that 20 percent of credit 
union customers were of middle-income and 49 percent were of upper- 
income, compared with 18 percent and 41 percent for banks. We found the 
difference between the proportion of upper-income customers at banks 
and credit unions to be statistically significant as well. 

In an effort to assess the extent to which credit unions served people 
of "modest means," we combined households with low-or moderate-incomes 
into one group (as a proxy for modest means) and combined households 
with middle or upper incomes into another group.[Footnote 32] We found 
that 31 percent of credit union customers were of "modest means," 
compared with 41 percent of bank customers, suggesting that banks 
served a higher proportion of people of "modest means." The difference 
between banks and credit unions was statistically significant. 

As shown in figure 2, the proportion of credit union customers that 
were in the upper-income category grew from 2001 to 2004. This 
increase, from 43 percent to 49 percent, was statistically significant. 
Thus, the statistically significant difference between banks and credit 
unions in serving people of "modest means" that we documented in our 
2003 report using 2001 data appears to have persisted in the 2004 data. 
Moreover, we found the decline from 2001 to 2004 in the proportion of 
credit union customers in the "modest means" category to be 
statistically significant. Additionally, the relatively high percentage 
of households in the moderate-and middle-income categories that used 
credit unions (37 percent) in the 2004 SCF may be reflective of credit 
union membership traditionally being based on occupational-or employer-
based fields of membership. 

Figure 2: Comparison of Income Levels of Credit Union and Bank 
Customers, from 2001 and 2004 SCF Data: 

[See PDF for image] - graphic text: 

Source: GAO and Federal Reserve. 

Note: Totals may not equal 100 percent due to rounding. 

[End of figure] - graphic text: 

However, NCUA officials told us that since growth in the agency's 
programs to expand services to lower-income persons and undeserved 
areas are relatively recent, it was probably too soon to expect any 
changes in the SCF data, with respect to customer income. Further, NCUA 
felt that it would take time for any results to appear in the data, as 
credit unions seeking to expand into new areas and reaching new types 
of customers would face a learning curve in their efforts. 
Additionally, NCUA officials stated that since most of the conversions 
to the community charter occurred within the last 5 years, within a 
reasonable period they expected to see a change in the customers these 
credit unions were serving. It should also be kept in mind that the 
latest available data from SCF are 2-years old, so any more recent 
changes would not be reflected in our analysis. 

As we noted in our 2003 report, limitations in SCF data preclude its 
use in drawing definitive conclusions about the income characteristics 
of credit union members. Additional information--especially about the 
income levels of credit union members receiving consumer loans and 
other credit union services--would be required to assess more 
completely whom credit unions serve. As further noted in our 2003 
report, NCUA has noted that credit union members were likely to have 
higher incomes than nonmembers because credit unions are occupationally 
based. As NCUA and others have noted--because of the statutory 
limitations on who can join federal credit unions--credit union 
membership is largely based on employment, and credit unions are 
restricted to the income composition of the individuals within fields 
of membership containing employed individuals. However, as we noted 
earlier, SCF provides the best data currently available regarding the 
income characteristics of credit union members. 

To determine how sensitive our results were to our income 
categorization, we used median family income in addition to median 
household income to analyze the 2001 and 2004 SCF data.[Footnote 33] We 
found similar results using both median family and household income. 
Recognizing the limitations of the SCF and other available data, our 
2003 report suggested that Congress consider requiring NCUA to obtain 
data on the extent that credit unions provided loans and other services 
to low-and moderate-income households within each federally insured 
credit union's field of membership.[Footnote 34] 

NCUA Has Pilot Survey to Measure Income of Credit Union Members, but 
Will Not Be Able to Use Results to Determine What Services Members at 
Various Income Levels Receive: 

In response to your Committee's concerns regarding the lack of 
available information to evaluate credit union member income and 
services, NUCA undertook a data collection effort to profile federal 
credit union member income information, identify the credit union 
services offered to credit union members, and provide information on 
the compensation of credit union executives. (We discuss executive 
compensation in more detail later in this report). As of August 31, 
2006, NCUA had completed its data collection phase, as agreed with the 
Office of Management and Budget under the Paperwork Reduction Act, 
which is intended to minimize the paperwork burden for nonprofit 
institutions.[Footnote 35] 

NCUA took a random sample of 481 federal credit unions and relied on 
two different data collection methods to determine member incomes. NCUA 
officials told us they intended to compare the results of the two 
methods to determine the extent of any income differences and identify 
which of the two approaches might be relied upon in the future. One 
method involved obtaining information such as a credit union member's 
zip code from NCUA's Automated Integrated Regulatory Examination System 
to make projections of median household income. The other method 
involved using the street address and zip codes of credit union members 
and applying a software package that uses geo-coding to determine 
median family income averages. The officials told us that the software 
package is widely used in the banking industry to help make income 
determinations for fair lending examinations. 

NCUA also gathered information from the credit unions on the type of 
services the institutions offer to their members, including services 
that may be of value to members with lower incomes or little financial 
experience. Using the same sample of credit unions, NCUA collected 
information on whether or not certain services are provided by the 
credit union. For example, NCUA gathered information on the extent to 
which the sampled credit unions offer low-balance checking accounts and 
whether they offer some type of financial literacy training. 

NCUA officials stated to us that there are limitations of the data 
collection effort. First, although the information collected represents 
a statistically valid random sample of the federal credit union 
population and will provide information on the income levels of overall 
federal credit union members, the data will not enable NCUA to make 
statistically valid conclusions by charter type or make conclusions 
about the extent of credit union services being provided to various 
income levels. The officials explained that to do so would require a 
larger and more time-consuming data collection effort, requiring an 
increase in sample from the current effort of 481 to a sample of almost 
1,200 credit unions. According to the officials, a larger sample would 
not allow them to meet their goal to report results by year-end 2006. 
NCUA indicated that despite these limitations, the data collected will 
add to the agency's knowledge and should be valuable in deciding what 
actions, if any, might be appropriate over the longer term. At the time 
of our discussions, NCUA had not developed benchmarks to use as a 
measure for a "modest means" category related to member income data. 
NCUA indicated that its data collection effort will help the agency 
better understand the concept of "modest means" in relation to 
geographically dispersed, limited, and diverse fields of membership. 
NCUA's data collection effort represents 61 percent of all credit 
unions because the regulator has oversight authority for federally 
chartered credit unions, while state governments have responsibility 
for overseeing the remaining 39 percent of the credit unions (state- 
chartered credit unions). Finally, while NCUA's data collection effort 
will be useful for establishing a baseline, NCUA officials stated that 
there are no plans to gather the information on a continual or routine 
basis. 

In response to a March 2006 congressional request, National Association 
of State Credit Union Supervisors (NASCUS) officials told us they and 
state regulatory agencies have initiated a data collection effort for 
state-chartered credit unions. NASCUS will collect some information 
similar to that collected in the NCUA pilot, such as membership income 
and executive compensation.[Footnote 36] However, NASCUS also will 
collect data in two additional areas: credit union service 
organizations (CUSO) and UBIT.[Footnote 37] NASCUS is using a 
methodology similar to NCUA's to determine member income levels. 
According to NASCUS, they have developed a representative sample by 
applying different weights to unique state credit union 
characteristics, including size, field of membership, and charter type. 
Credit unions selected in the representative sample will respond to a 
questionnaire developed by state regulatory agencies. The questionnaire 
addresses membership, CUSOs, UBIT and executive compensation. As of 
September 2006, the officials indicated that the data collection effort 
had started, and that they expected the results to be available in the 
first quarter of 2007. 

Credit Unions Offered Better Interest Rates on Some Products, but the 
Extent to Which the Benefits of Tax-Exempt Status Have Been Passed to 
Members Is Unclear: 

Our analysis showed that credit unions tended to offer better interest 
rates than similarly sized banks for a variety of products and loans, 
but rate data alone cannot be used to determine the extent to which the 
benefits of tax exemption have been passed to members. We obtained and 
analyzed rate data for various savings products offered by credit 
unions and banks from 2000 through 2005 and found that credit unions on 
average offered higher rates than comparably sized banks.[Footnote 38] 
Similarly, the rate data that we obtained for various loan products 
indicated that on average credit unions tended to offer lower interest 
rates than comparably sized banks, particularly for consumer loans such 
as automobile loans. However, it is important to note that interest 
rates during the period covered by our analysis were at historic lows. 

As seen in figure 3, rates offered by credit unions from 2000 through 
2005 on regular savings accounts on average were higher than those 
offered by similarly sized banks. However, the differences among the 
rates of comparably sized credit unions and banks tended to get larger 
as the size of the institutions increased. For example, for 
institutions with assets of less than $100 million, the difference 
between credit unions and banks averaged about 0.15 of a percentage 
point in this period, while the difference for institutions with assets 
greater than $1 billion averaged almost 0.7 of a percentage point. More 
recently, the gap in rates between larger credit unions and banks 
closed considerably; in the greater than $1 billion asset range, the 
gap was more than 1 percentage point in 2000, but about one-half of 1 
percent in 2005. We observed similar trends throughout the period for 
other savings products such as money market accounts and certificates 
of deposit (see app. III). 

Figure 3: Regular Savings Account Rates of Credit Unions and Banks with 
Assets of $100 Million or Less and Assets Greater than $1 Billion, from 
2000 through 2005: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

The difference between credit unions and banks was more pronounced for 
consumer loans. For example, over the 6-year period, the rates that 
credit unions charged for 60-month new car loans tended to be lower 
than the rates charged by similarly sized banks, by 1 or 2 percentage 
points. As shown in figure 4, the trend was consistent for the larger 
asset category as well. However, unlike savings products, the rate 
differences between credit unions and banks for car loans widened in 
2005. These trends held true for rates for other consumer products such 
as credit cards. 

Figure 4: Sixty-Month New Car Loan Rates of Credit Unions and Banks 
with Assets of $100 Million or Less and Assets Greater than $1 Billion, 
from 2000 through 2005: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Although credit unions charged lower interest rates for consumer loans, 
similarly sized credit unions and banks charged virtually identical 
rates on larger loans such as mortgages, from 2000 through 2005 (see 
fig. 5). In some limited instances, banks offered lower rates than 
similarly sized credit unions. Also, larger institutions in general 
offered lower rates than smaller institutions. 

Figure 5: Thirty-Year Mortgage Loan Fixed Rates of Credit Unions and 
Banks with Assets of $100 Million or Less and Assets Greater than $1 
Billion, from 2000 through 2005: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[A] Data based on responses of less than 10 institutions. 

[End of figure] - graphic text: 

Our analysis of deposit and loan rate data for credit unions and banks 
does not fully identify how the tax-exemption of credit unions might 
benefit credit union members. First, there may be other reasons for 
differences in rates beside tax differences. For example, loan rates 
may differ because of differences in borrower characteristics, such as 
creditworthiness, or because of geographic market differences. In 
addition, tax-exemption may benefit members in other ways than through 
loan and deposit rates. Credit unions might also charge lower fees than 
they otherwise would for services and products provided to members. We 
did not identify any comprehensive studies or data sources that 
addressed differences in fees charged by credit union and banks on a 
national basis. Unlike banks, credit unions can finance additional 
services and add to desired or required reserves through untaxed 
retained income. As a result of tax-exemption, credit unions may retain 
more income to add to reserves or to finance additional services than 
they would if they were taxed. 

Lack of Guidance and Criteria for Applying UBIT to State Credit Union 
Activities Makes Determining Compliance with the Requirement Difficult: 

As stated earlier, state-chartered credit unions are subject to tax on 
unrelated business income while federal credit unions specifically are 
exempt. IRS has several ongoing examinations of state-chartered credit 
unions to determine which of their activities are subject to UBIT. 
Credit union trade groups have stated the need for guidance regarding 
the activities that IRS has determined to be subject to UBIT; IRS has 
stated that it plans to issue technical advice in 2007 after completing 
its reviews. Furthermore, the practice of allowing group statewide 
filings has made it more difficult for the IRS to scrutinize the 
activities of individual institutions to ensure compliance with the 
UBIT statute. IRS officials asserted that the agency plans to issue 
technical advice on the application of UBIT to state credit union 
activities, which they stated should improve credit union compliance 
with the statute. 

IRS Has Questioned Which State Credit Union Activities Should Be 
Subject to UBIT: 

UBIT is a tax on income derived by a tax-exempt entity from a trade or 
business that is regularly carried on and not substantially related to 
the exercise or performance of the purpose or function constituting the 
basis for the entity's exemption. Under the Internal Revenue Code, 
state-chartered credit unions are subject to UBIT, but federal credit 
unions are not subject to the tax because they are exempt federal 
instrumentalities under a provision of the code.[Footnote 39] As shown 
in table 4, the amount of income subject to UBIT reported by state-
chartered credit unions and the related taxes paid nearly doubled from 
2000 through 2004 and totaled more than $5 million over this period. 

Table 4: UBIT Income Declared and Taxes Paid by State-Chartered Credit 
Unions, 2000-2004: 

Tax year: 2000; 
Total UBIT income[A]: $2,565,056; 
Total taxes paid: $691,094. 

Tax year: 2001; 
Total UBIT income[A]: 3,642,903; 
Total taxes paid: 927,896. 

Tax year: 2002; 
Total UBIT income[A]: 9,820,709; 
Total taxes paid: 1,281,938. 

Tax year: 2003; 
Total UBIT income[A]: 3,788,412; 
Total taxes paid: 1,050,767. 

Tax year: 2004; 
Total UBIT income[A]: 4,646,782; 
Total taxes paid: 1,377,726. 

Tax year: Total; 
Total UBIT income[A]: $24,463,862; 
Total taxes paid: $5,329,421. 

Source: IRS. 

[A] Negative income (UBIT losses) are not included in the UBIT income 
figures. 

[End of table] 

As credit unions have increased the types of products and services that 
they offer, certain product offerings by state-chartered credit unions 
have resulted in IRS examining whether state-chartered credit unions 
are using their tax-exempt status to conduct business unrelated to 
their exempt purposes. In November 2005, an IRS commissioner informed 
the Congress of an IRS review of certain activities of state-chartered 
credit unions for purposes of UBIT.[Footnote 40]The IRS has been 
reviewing activities that included the following: 

* the sale of optional credit life insurance and credit disability 
insurance to members that would pay off the loan balances with the 
organization, if the borrower died or became disabled; 

* the sale of "guaranteed auto protection" insurance, which pays the 
automobile loan balance in the event of loss or destruction of a 
vehicle to the extent it exceeds the value of the vehicle; 

* the sale of automobile warranties; 

* the sale of cancer insurance; 

* the sale of accidental death and dismemberment insurance; 

* ATM fees charged to nonmembers; 

* the sale of health or dental insurance; 

* the marketing of mutual funds to members; and: 

* the marketing of other insurance and financial products.[Footnote 41] 

According to IRS officials, the agency had 50 ongoing examinations of 
state-chartered credit unions for UBIT purposes as of September 2006. 

Determining the applicability of UBIT to state credit union activities 
is a complicated proposition because it depends on the relationship of 
the activities to credit unions' tax-exempt purposes or functions. 
However, as IRS stated in a Technical Advice Memorandum, neither the 
Internal Revenue Code nor IRS regulations enumerate the functions of a 
credit union exempt under section 501(c)(14) of the code.[Footnote 42] 
The tax-exemption is based on what can be described as structural 
features, specifically the institution's mutuality and nonprofit 
operations, whether it is organized and operated in accordance with 
state law, and whether its members share a common bond.[Footnote 43] 

Groups Representing state-chartered credit unions and the Credit Union 
National Association have stated that IRS has not provided sufficient 
guidance on which credit union activities are or are not subject to 
UBIT. According to IRS officials, IRS is planning to issue specific 
information in the form of Technical Advice Memoranda as a result of 
its examination of credit union UBIT activities in the first quarter of 
2007.[Footnote 44] IRS believes that the Technical Advice Memoranda 
will more clearly articulate specific activities of state-chartered 
credit unions that can be subject to the tax and improve compliance 
with the statute. 

Group Filings Make It More Difficult for IRS to Scrutinize the 
Activities of Individual Credit Unions: 

Not-for-profit entities that generate more than $1,000 in unrelated 
business income are required to disclose on Form 990 that they have 
generated such income and whether they have filed an Exempt 
Organization Business Income Tax Return (Form 990-T) with IRS declaring 
the income and related UBIT liability. State-chartered credit unions 
are required to file Form 990, and Form 990-T if they generate 
unrelated business income in excess of $1,000. However, according to 
IRS officials, an IRS ruling allows state regulatory authority in some 
states to file forms 990 on a groupwide basis; that is; one form can be 
filed on behalf of all state-chartered credit unions in a particular 
state.[Footnote 45] Thus, a state-chartered credit union located in one 
of those states could generate taxable unrelated business income 
without having to file a Form 990, individually. According to IRS 
officials, the group ruling applies to 34 states, and group returns in 
about 21 of those states have been filed in recent years. Of the 21 
states, only 1 has asserted on the Form 990 that UBIT was generated in 
that state. 

IRS stated it would be able to positively verify if an individual 
credit union declaring unrelated business income in excess of $1,000 on 
its Form 990 also filed a Form 990-T. However, the agency currently 
does not have a process in place to review group returns to ensure that 
the credit unions filed the Form 990-T. As a result, IRS cannot 
systematically determine if credit unions that were included in group 
returns and generated unrelated business income properly filed a Form 
990-T declaring such income and paid UBIT. According to IRS officials, 
the group exemption process was instituted to relieve IRS of the burden 
of individually processing a large number of applications from 
organizations sharing a common affiliation and that are operated for 
the same general purpose. For example, IRS noted that some 
organizations, including churches and veterans organizations, have a 
great number of subordinate organizations that are similarly situated. 
IRS officials agreed that requiring all state-chartered credit unions 
to file an individual Form 990 could enhance the agency's ability to 
scrutinize the activities of individual credit unions to determine 
whether they were subject to UBIT. However, officials also noted that 
it was not clear if the benefits of eliminating the group filing 
exemption would exceed the costs--both to IRS as well as to the 
individual credit unions. Specifically, officials noted that credit 
unions that are currently included in group returns would each need to 
file for recognition as a tax-exempt organization and incur annual 
costs to prepare and file individual Form 990. Moreover, IRS officials 
noted that they expect that the Technical Advice Memoranda that the 
agency is planning to issue in early 2007 would improve credit union 
compliance with UBIT filing requirements. 

Alternatives Exist to Improve the Transparency of Credit Union 
Executive and Director Compensation: 

Federal credit union executive compensation is not transparent. Federal 
credit unions are not required to file reports, including the IRS Form 
990 required for most other tax-exempt organizations that would provide 
information on executive and director compensation. NCUA legal opinions 
have stated that member access to credit union records is generally a 
matter of state law but that federal credit union members "have 
inspection rights similar to those enjoyed by a shareholder in a 
corporation" and that "the general rule in most jurisdictions is that a 
shareholder is entitled to inspect corporate minutes and other records 
as long as he has a proper, nonvexatious purpose."[Footnote 46] 
However, we could not determine to what extent credit unions and credit 
union members were aware of this information. We identified a number of 
credit union and bank executive compensation surveys, but data and 
methodological limitations precluded us from making direct comparisons 
of executive compensation. NCUA has collected executive compensation 
information for federal credit unions as part of its efforts to assess 
who credit unions serve. 

Public Reporting of Executive Compensation for Federal Credit Unions Is 
Limited and Regulator Scrutiny of Compensation Is Primarily Reviewed 
for Safety and Soundness Concerns: 

The issue of transparency and disclosure of executive compensation has 
become an important topic, both for tax-exempt entities and publicly 
held companies. Credit union members bear some similarity to public 
company shareholders in that they are "owners" and vote for boards of 
directors that are entrusted to oversee executive compensation. The 
importance of disclosure of executive and director compensation was 
illustrated in recent changes adopted by SEC in July 2006 to increase 
transparency and disclosure by public companies and reflect the 
increasing focus on corporate governance and director independence. 
According to SEC, the objective was to provide investors with a clearer 
and more complete picture of the compensation earned by a company's 
principal executive officer, principal financial officer, highest paid 
executive officers, and members of its board of directors. 

In contrast, credit union executive compensation is not transparent 
because credit unions are not required to file publicly available 
reports such as the IRS Form 990 that disclose executive compensation 
data. For tax-exempt organizations, IRS has noted that some members of 
the public rely on Form 990 as the primary or sole source of 
information about a particular organization. Most tax-exempt 
organizations with gross receipts that are normally more than $25,000 
are required to file the Form 990 annually. IRS also uses these forms 
to select organizations for examinations. Figure 6 shows the 
compensation information collected on the Form 990. 

Figure 6: Compensation Information Filed in IRS Form 990: 

[See PDF for image] - graphic text: 

Source: IRS. 

[End of figure] - graphic text: 

On August 23, 1988, IRS issued a determination that federal credit 
unions are not required to annually file a Form 990 because of their 
status as tax-exempt instrumentalities under section 501(c)(1) of the 
Internal Revenue Code. Also, as noted previously, some state-chartered 
credit unions file through a group filing process (21 states in 2004). 
For these states, IRS receives only the name and addresses of 
individual credit unions. As a result, scrutiny of the compensation of 
credit union executives and other key personnel is limited. 

Additionally, boards of directors of credit unions receive limited 
compensation because the directors serve in nonpaid positions. 
According to the Federal Credit Union Act, no member of a federal 
credit union board may be compensated; however, a federal credit union 
may compensate one individual who serves as an officer of the 
board.[Footnote 47] Although the credit union may not pay its board of 
directors a salary, it may provide or reimburse directors for such 
things as mileage; insurance, including life, health, and accident 
insurance; and travel expenses. In contrast, bank boards of directors 
may receive fees such as an annual retainer for serving on the board, 
profit sharing, professional fees, and other bonuses. Also, according 
to one bank survey, about half of the banks that responded indicated 
that their compensation fees were based strictly upon attendance. 

According to NCUA, executive compensation is assessed during the credit 
union's examination to determine its reasonableness as it relates to 
safety and soundness concerns. As stated in our 2003 report, NCUA 
recently moved from an examination and supervision approach that 
primarily was focused on reviewing transactions to an approach that 
focuses resources on high-risk areas within a credit union.[Footnote 
48] To complement the risk-focused approach and allow NCUA to better 
allocate its resources, the agency adopted a risk-based examination 
program in July 2001. NCUA officials explained that supervisory 
examinations, including reviews of credit union executive compensation, 
follow a risk-focused approach. The officials told us that examiners 
would review executive compensation in instances of safety or soundness 
concerns, such as compensation arrangements that significantly exceeded 
compensation paid to persons with similar responsibilities in credit 
unions of similar size and in similar locations. NCUA also stated that 
since it has not found a systemwide issue with executive compensation, 
it has not considered it necessary to collect or aggregate executive 
compensation data. Additionally, we found NCUA's guidance on 
compensation similar in content with the Federal Financial Institutions 
Examination Council's (FFIEC) Interagency Guidelines Establishing 
Standards for Safety and Soundness.[Footnote 49] 

At various times, credit unions and others have questioned whether 
members have the right to obtain and inspect credit union information, 
including salary data. NCUA legal opinions have stated that member 
access to credit union records is generally a matter of state law, and 
federal credit unions should look to the appropriate state corporate 
law. In a letter dated June 14, 1996, NCUA's Associate General Counsel 
said that federal credit union members "have inspection rights similar 
to those enjoyed by a shareholder in a corporation" and that "state law 
determines the types of information and documents, and the degree of 
access, available to shareholders/members."[Footnote 50] The letter 
stated that "the general rule in most jurisdictions is that a 
shareholder is entitled to inspect corporate minutes and other records 
as long as he has a proper, nonvexatious purpose." However, it is 
unclear to what extent federal credit union members and credit union 
personnel are aware of a member's right to inspect records, or how 
difficult or easy it would be for credit union members to obtain 
information such as salaries. 

Industry Surveys That Address Executive Compensation Are Limited, and 
NCUA Has Released Its Compensation Data: 

We could not identify any surveys or studies that directly compared 
credit union executive compensation with compensation provided by 
similarly sized banks. However, we did identify a few credit union and 
bank trade group surveys that address executive compensation for their 
respective industries.[Footnote 51] Credit union and bank trade group 
officials told us that these surveys generally are used to help their 
industries gauge comparable pay by job title and an institution's asset 
size. 

Several limitations exist that preclude us from directly comparing 
credit union and bank executive compensation. While these surveys 
provided information on the cash compensation by job title, 
institution, and asset size, the surveys did not provide detailed 
information on the other forms of compensation received to allow a 
direct comparison of credit union and bank executive compensation. Some 
benefits include items such as retirement plans, stock options (for 
bank executives), employment contracts, severance pay, and perks such 
as vehicle allowances. Due to the lack of consistency and availability 
of data beyond cash compensation in these surveys, it is difficult to 
make any overall comparisons between credit union and bank executive 
compensation. Other limitations to these surveys include, in some 
instances, low response rates for the three executive positions (chief 
executive officer, chief financial officer, and chief operating 
officer). Further, the data collected in these surveys were based on 
self-reported information from the survey participants. Appendix IV 
provides more detail on the survey limitations and the results of 
executive compensation for credit unions and banks that responded to 
their respective surveys. 

As mentioned previously, NCUA has collected credit union executive 
compensation data and reported compensation information on the top- 
three executive positions--chief executive officer, chief financial 
officer, and chief operating officer. NCUA collected 2005 compensation 
information from the IRS Form 1099 and Form W-2 (wages and salary 
data). NCUA officials told us that the sample size will enable them to 
project industry averages for the federal credit union population and 
be stratified into two statistically valid subsets based on the asset 
size of the credit unions surveyed. However, the NCUA effort provides a 
snapshot of federal credit union compensation for a single year, 2005, 
and it is unclear whether NCUA will conduct future reviews of credit 
union executive compensation. 

NCUA also suggested alternative methods of collecting compensation 
information and increasing the transparency of the information. During 
our review, NCUA indicated that it was considering amending the 
quarterly "call reports" that all federally insured credit unions are 
required to submit to NCUA to include compensation and benefit data for 
senior executive officers. Call reports are available for public 
inspection, and NCUA routinely reviews them. Currently, the call report 
collects only aggregate data on employee compensation and benefits. 
Additionally, NCUA officials indicated that requiring credit unions to 
disclose credit union salary information to members during public 
meetings would be another alternative for increasing the transparency 
of executive and director compensation. 

Conclusions: 

Since the passage of CUMAA and subsequent changes to NCUA regulations 
that permitted credit unions to serve larger geographic areas and 
enlarged fields of membership, community-chartered federal credit 
unions have grown in number and asset size. As a result, the common 
bonds of occupation or employment that traditionally existed between 
credit union members have become attenuated, blurring one of the 
historical distinctions between credit unions and other depository 
institutions. But, credit unions do retain distinctions in terms of 
structure and governance, and they retain their tax-exempt status. 

One perceived rationale for the credit union tax exemption, expressed 
by Congress, is the notion that credit unions serve individuals of 
small or modest means. Yet, it is difficult to determine to what extent 
credit unions actually serve individuals of modest means. Although NCUA 
has established programs to expand services to this group, the relative 
newness of the programs, combined with the absence of long-term, 
continuing, and systematic collection of data on the income of credit 
union members, currently preclude an assessment both of the programs' 
effectiveness and overall industry performance. However, limited data 
(SCF) suggest that in both 2001 and 2004, credit unions had a smaller 
proportion of low-and moderate-income customers than banks. NCUA 
officials have noted that it may be too soon for data to fully reflect 
NCUA initiatives and industry activities and that growth in the 
community charter will allow credit unions to draw members from larger 
and more diverse populations, including people of modest means. 

While NCUA has taken steps to identify the income levels of credit 
union members, several limitations in NCUA's data collection effort 
will make it difficult to fully assess the extent to which credit 
unions have been serving low-and moderate-income populations. Notably, 
the data will not stratify information about member incomes by specific 
charter types or identify the specific financial services that credit 
union members have been using. Obtaining more detailed information on 
credit union member income and the financial services they used could 
help NCUA track the performance of credit unions and help monitor 
progress over time. Furthermore, this information would provide 
Congress and the public with clear evidence that, as CUMAA notes, 
credit unions were accomplishing their "specified mission" of "meeting 
the credit and savings needs of consumers, especially persons of modest 
means." However, the NCUA effort, while laudable, currently is confined 
to a pilot project. The value and utility of the information collected 
would be greatly enhanced if NCUA were to move beyond a pilot and 
continue the data collection effort and address some of the limitations 
of the pilot. 

Although state-chartered credit unions have increased the amount of 
UBIT paid in recent years, determining which credit union activities 
are subject to the UBIT is difficult. IRS is currently conducting 
examinations of state-chartered credit unions and plans to release 
technical advice early in 2007 that the agency believes will more 
clearly explain which credit union activities are subject to the UBIT. 
While state-chartered credit unions are required to file information 
returns (Form 990), the group that are filed constrain IRS's ability to 
scrutinize credit union activities related to UBIT because they convey 
little information about individual credit unions. However, IRS is 
planning to issue technical advice describing specific state credit 
union activities that may be subject to the UBIT to help ensure state 
credit union payment of the tax. 

Finally, the transparency of executive compensation is an important 
issue for private and public companies alike. In the private sector, 
SEC's recent efforts to increase the transparency of publicly held 
companies underscore the importance of enhancing accountability and 
greater disclosure of information. In contrast, credit union executive 
compensation is not transparent due to the lack of information 
available to the public. Increased public opportunities to review 
executive salaries would promote greater credit union accountability, 
similar to requirements for publicly held companies. While the Form 990 
is an avenue for increasing both the quantity and transparency of 
publicly available information about executive compensation at credit 
unions, federal credit unions are not required to file the form. 
However, the public could be given other opportunities to review credit 
union activities. For example, NCUA could require all federally insured 
credit unions to include compensation and benefit data for senior 
executive officers in the call reports that are submitted on a 
quarterly basis--an option that NCUA officials indicated was under 
current consideration. Or, NCUA could require federal credit unions to 
disclose or make available credit union records, such as senior 
executive salary information, to members during annual meetings. 

Recommendations for Executive Action: 

To help ensure that credit unions are fulfilling their tax-exempt 
mission of providing financial services to their members, especially 
those of low or moderate incomes, we recommend that the Chairman of 
NCUA systematically obtain information on the income levels of federal 
credit union members to allow NCUA to track and monitor the progress of 
credit unions in serving low-and moderate-income populations. NCUA's 
recent pilot survey to measure the income of credit union members could 
serve as a starting point to obtain more detailed information on credit 
union member income. Ideally, NCUA should expand its survey to allow 
the agency to monitor member income characteristics by credit union 
charter type, obtain information on the financial services that low-and 
moderate-income members actually use, and monitor progress over time. 

To increase the transparency of executive compensation and enhance 
accountability of credit unions, we recommend that the Chairman of NCUA 
take action to ensure that information on federal credit union 
executive compensation is available to credit union members and the 
public for review and inspection. To achieve this, NCUA may want to 
consider options such as requiring federal credit unions to include 
specific information on executive compensation in call reports or 
issuing regulations that would require all federal credit unions to 
make executive compensation information available to members of credit 
unions at annual meetings. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Chairman of NCUA and the 
Commissioner of IRS for their review and comment. We received written 
comments from NCUA that are summarized below and reprinted in appendix 
V. In addition, we received technical comments from IRS that have been 
incorporated into this report as appropriate. 

In its comment letter, NCUA indicated that the agency's staff have 
recommended that the NCUA board consider taking actions consistent with 
the recommendations made in our report. NCUA, however, expressed 
concerns with certain important aspects of the draft report. In 
particular, NCUA stated in its letter that a meaningful comparison 
between federally chartered credit unions and other financial 
institutions should include an in-depth assessment of their structural 
and governance differences. NCUA also noted that the substantive 
differences among federal credit unions in charter types and fields of 
membership significantly impact, among other things, who credit unions 
serve and how they operate and provide services. We agree that there 
are important structural and governance differences between credit 
unions and other depository institutions, which are highlighted in the 
report. For example, page one of the draft and current report notes 
that credit unions, unlike banks, are (1) not-for-profit entities that 
build capital by retaining earnings (they do not issue capital stock); 
(2) member-owned cooperatives run by boards elected by the membership; 
(3) subject to field of membership requirements that limit membership 
to persons sharing certain circumstances, such as a common bond of 
occupation or association; and (4) exempt from federal income tax. 
Additionally, we agree that differences in charter types and fields of 
membership are important factors that should be considered in assessing 
who credit unions serve. However, as we note in the report, 
statistically reliable data on credit union members by charter type and 
field of membership were not available at the time of our review. The 
lack of this type of data was the primary basis for the report's 
recommendation that NCUA systematically obtain information on the 
income levels of federal credit union members. We are encouraged by 
NCUA's pilot effort to obtain information on the income levels of 
federal credit union members and continue to believe the value of the 
information collected would be greatly enhanced if NCUA were to 
continue its data collection efforts and address some of the 
limitations of the pilot.[Footnote 52] Specifically, NCUA's data 
collection efforts could be strengthened by (1) providing benchmark 
data, such as general population income statistics or other appropriate 
measures, to allow comparisons with the data collected on the income 
levels of credit union members; (2) obtaining data on the extent of 
services offered by credit unions (e.g., free checking accounts, no 
charge ATMs, low-cost wire transfers, etc.) are being used by income 
category; (3) expanding the data collection effort to allow the results 
to be projectable by charter type; and (4) conducting the study on a 
systematic or periodic basis to assess the extent of progress over 
time. 

NCUA's letter also stated that it was inaccurate and inappropriate to 
measure the success of federally chartered credit unions in serving 
persons of modest means by reference only to the low-and moderate- 
income categories associated with the Community Reinvestment Act. 
Specifically, NCUA noted that there was legal and historical evidence 
that the term modest means, as used by Congress in the context of the 
Federal Credit Union Act, is intended to include a broader range of 
individuals than those in low-and moderate-income categories. As we 
noted in the report, neither the Federal Credit Union Act nor NCUA have 
established definitions as to what constitutes modest means. Thus, we 
used the group consisting of low-and moderate-income households as a 
proxy for persons of modest means for the purposes of our analysis. 
This allowed us to use the definitions established for the Community 
Reinvestment Act as the basis for income categories used on our 
analysis. Our analysis not only included comparisons between credit 
unions and banks of low-and moderate-income households but also middle 
and upper income households for both the 2001 and 2004 SCF. This 
analysis shows that between 2001 and 2004 credit unions continued to 
serve a higher proportion of middle-and upper-income households and a 
smaller proportion of low-and moderate-income households than did 
banks. 

In its letter, NCUA noted that our income category benchmarks were 
inconsistent with the specific definitions of the CRA categories the 
other federal financial regulators used--specifically the use of 
national versus local median income for our benchmarks. Because the 
most comprehensive and statistically reliable data available on the 
income characteristics of credit union and bank customers at the time 
of our review--the Federal Reserve's Survey of Consumer Finances--were 
nationally representative, we used national median income measures as 
the basis for our income categories whereas the categories used for the 
Community Reinvestment Act are based on more local measures. 

NCUA's letter also expressed concerns about the reliability of 
conclusions reached using the Federal Reserve's Survey of Consumer 
Finances data. Specifically, NCUA noted that the SCF was not designed 
for reliable income comparisons between credit union members and bank 
customers. As we noted in our draft and current report, we agree that 
the SCF was not specifically designed to conduct comparative analyses 
of income levels of bank and credit union customers; however, SCF 
provides the best data currently available to undertake such a 
comparison. As we reported in 2003, we analyzed the SCF because it is a 
respected source of publicly available data on financial institution 
and consumer demographics that is nationally representative and because 
it was the only comprehensive source of publicly available data that we 
could identify with information on financial institutions and consumer 
demographics. Moreover, our draft and current report noted limitations 
in SCF data that preclude drawing definitive conclusions about the 
income characteristics of credit union members. NCUA also provided 
additional detailed written comments as an enclosure to its letter, 
which we have reprinted in appendix V with our responses. 

As we agreed with your office, unless you publicly announce the 
contents of this report earlier, we plan no further distribution until 
30 days from the date of this letter. At that time, we will send copies 
of the report to the Ranking Member, House Committee on Ways and Means; 
other interested congressional committees and subcommittees; the 
Chairman, NCUA; and the Commissioner, IRS. We will make copies 
available to others upon request. In addition, the report will be 
available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov]. 

If you have any questions concerning this report, please contact Yvonne 
D. Jones at (202) 512-8678. Contact points for our Office of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. See appendix VI for a list of other staff who 
contributed to the report. 

Sincerely yours, 

Signed by: 

Yvonne D. Jones: 
Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our report objectives were to (1) assess the effect of the 1998 Credit 
Union Membership Access Act (CUMAA) on federal credit union membership 
and charter expansion, (2) review the National Credit Union 
Administration's (NCUA) efforts to expand credit union services to low- 
and moderate-income individuals, (3) compare rates offered by credit 
unions to comparably sized banks as one indicator of how tax-exemption 
might benefit credit union members, (4) discuss issues associated with 
the application of the federal unrelated business income tax (UBIT) to 
credit unions, and (5) assess the transparency of credit union 
executives and board member compensation. 

Effects of CUMAA and NCUA Regulations and NCUA Efforts to Serve Low-and 
Moderate-Income Individuals: 

To study the impact of CUMAA on federal credit union membership and 
charter expansion, we reviewed and analyzed the legislative history for 
CUMAA and compared its provisions with NCUA interpretive rulings and 
policy statements in effect before and after the enactment of CUMAA. In 
addition, we interviewed NCUA officials and industry representatives 
and met with credit union and banking trade groups including the 
National Association of Federal Credit Unions, National Association of 
State Credit Union Supervisors (NASCUS), Credit Union National 
Association, America's Community Bankers, and Independent Community 
Bankers to obtain their viewpoints on how CUMAA and NCUA regulation 
affected credit union chartering and field of membership. To obtain 
information about state credit union chartering and fields of 
membership, we held discussions and reviewed documentation provided by 
NASCUS. Finally, we obtained electronic files from NCUA that contained 
annual call report financial data (Form 5300) of all federally 
chartered credit unions for year-ends 2000 through 2005. The 
information included the number of credit unions, actual and 
"potential" membership (that is, people within a credit union's field 
of membership but not members of the credit union), assets, charter 
approvals, charter conversions, and charter expansions. 

To identify the results of NCUA programs intended to expand credit 
union services to low-and moderate-income individuals and underserved 
areas, we analyzed NCUA call report data for the low-income-designated 
credit unions and credit unions that expanded into underserved areas 
for year-ends 2000 through 2005. The data included information on the 
number of credit unions participating in these programs, their asset 
size, and their membership. 

We reviewed NCUA-established procedures for verifying the accuracy of 
the Form 5300 database and found that the data are verified on a yearly 
basis, either during each credit union's examination or through off- 
site supervision. In addition, we cross checked the December 2000 to 
December 2002 data that we recently received with the same data in our 
2003 report. We determined that the data were sufficiently reliable for 
the purposes of this report. 

Further, we analyzed existing data on the income levels of credit union 
customers. Specifically, we analyzed both the 2001 and 2004 releases of 
the Board of Governors of the Federal Reserve System's (Federal 
Reserve) Survey of Consumer Finances (SCF). The SCF is conducted every 
3 years and is intended to provide detailed information on the balance 
sheets, pension, incomes, and demographics of U.S. households and their 
use of financial institutions.[Footnote 53] Because some households use 
both banks and credit unions, we performed our analyses based on the 
assumption that households can be divided into four user categories-- 
those who use credit unions only, those who primarily use credit 
unions, those who use banks only, and those who primarily use 
banks.[Footnote 54] "Primarily use" banks (or credit unions) means 
placing more than 50 percent of a household's assets in banks (or 
credit unions). As in our prior report, we created four income 
categories that are based on those used by financial regulators as part 
of Community Reinvestment Act examinations--low, moderate, middle, and 
upper--to classify these households (see table 5).[Footnote 55] As in 
our 2003 report, we were unable to find a definition of "modest means"; 
thus, to assess the extent to which credit unions served people of 
"modest means," we combined households with low-or moderate-incomes 
into one group as a proxy for modest means. 

Table 5: Definition of Income Categories Used for Community 
Reinvestment Act Examinations: 

Categories: Low income; 
Definitions: Income less than 50 percent of the Metropolitan 
Statistical Area's (MSA) median income. 

Categories: Moderate income; 
Definitions: Income at least 50 percent and less than 80 percent of the 
MSA''s median income. 

Categories: Middle income; 
Definitions: Income at least 80 percent and less than 120 percent of 
the MSA's median income. 

Categories: Upper income; 
Definitions: Income at least 120 percent or more of the MSA's median 
income. 

Source: 12 C.F.R. 228.12(n). 

[End of table] 

Finally we discussed with NCUA officials the design and methodology of 
its ongoing pilot project to measure the income levels of federal 
credit union members. We also discussed with NASCUS officials their 
effort to measure the income levels of state-chartered credit union 
members. 

Comparison of Interest Rates Offered by Credit Unions With Those at 
Comparably Sized Banks: 

To compare the rates of credit unions with those at comparably sized 
banks, we engaged the services of Datatrac Corporation--a market 
research, information technology company specializing in the financial 
services industry--to provide data on 15 loan and savings products 
offered by credit unions and banks.[Footnote 56] Datatrac calculated 
the average rates for each of these products by five distinct peer 
groups for asset size, for about 2,000 credit unions and 4,000 banks 
(see table 6). 

Table 6: Peer (Asset) Group Definitions, Used in Comparisons of 
Interest Rates between Credit Unions and Banks: 

Group: I; 
Asset size of institution: Total assets of $100 million or less. 

Group: II; 
Asset size of institution: Total assets greater than $100 million, but 
less than or equal to $250 million. 

Group: III; 
Asset size of institution: Total assets greater than $250 million, but 
less than or equal to $500 million. 

Group: IV; 
Asset size of institution: Total assets greater than $500 million, but 
less than or equal to $1 billion. 

Group: V; 
Asset size of institution: Total assets greater than $1 billion, but 
less than or equal to the asset size, rounded up to the nearest billion 
dollars, of the largest credit union. 

Source: GAO. 

[End of table] 

We established the peer groups based on the institution's size as 
measured by total assets for banks and credit unions. Datatrac obtained 
asset information for each institution by combining information in its 
database with call report data for each institution. Datatrac computed 
average rates for institutions overall and for all institutions within 
analysis groups. In computing these simple averages, individual 
institution rates were not weighted to reflect loan volume or other 
measures of size. 

Datatrac provided us with an electronic file containing information for 
2000 through 2005. The information included (1) institution type, (2) 
average rate, (3) maximum rate, (4) minimum rate, (5) standard 
deviations, (6) product name, (7) quarter and year, and (8) institution 
counts. We interviewed Datatrac officials to confirm that they followed 
industry accepted protocols to ensure data integrity, including input 
and processing controls. We also reviewed Datatrac's methodological 
documentation. In addition, we conducted reasonableness checks on the 
data we received and identified data gaps in the year-end 2003 
information. Datatrac examined its processing procedures and explained 
to us that its cut-off date was incorrectly designated 1 week later 
than planned. At the same time, Datatrac also verified that the same 
problem did not exist in any other quarters of the years 2000 through 
2005. Datatrac provided us an updated electronic file reflecting the 
corrections. We determined that the revised data were sufficiently 
reliable for the purposes of this report. 

Issues Related to the Application of UBIT to Credit Unions: 

To review issues related to the application of UBIT to credit unions, 
we reviewed the legislative history of UBIT and the historical basis 
for the tax-exempt status of credit unions and met with representatives 
of the Internal Revenue Service (IRS) to discuss UBIT filing and 
reporting requirements. We also discussed with IRS officials their 
examinations of unrelated business activity at state-chartered credit 
unions and development of policies and procedures in this area. We also 
obtained information from IRS on the number and types (group versus 
individual) of Return of Organization Exempt from Income Tax (Form 990) 
and Exempt Organization Business Income Tax Return (Form 990T) filings 
by state-chartered credit unions and the amount of unrelated business 
income reported and taxes paid by state-chartered credit unions for tax 
years from 2000 through 2004. 

Information on Transparency and Compensation of Executive Compensation: 

To provide information on the transparency and compensation of credit 
union executives and board members, including an assessment of the 
availability of compensation data to credit union members and a 
comparison of executive compensation at credit unions and comparably 
sized banks, we interviewed officials at NCUA and IRS to discuss 
executive compensation reporting requirements. We obtained and analyzed 
examiner guidance on compensation from NCUA and the other federal 
banking regulators--the Federal Deposit Insurance Corporation, Federal 
Reserve, Office of the Comptroller of the Currency, and Office of 
Thrift Supervision. We also met with credit union and banking trade 
groups including the National Association of Federal Credit Unions, 
NASCUS, Credit Union National Association, America's Community Bankers, 
and Independent Community Bankers to identify publicly available data 
regarding the compensation of credit union and bank senior executives. 
We reviewed and analyzed selected credit union and bank compensation 
surveys. For more information on the surveys and our analysis, see 
appendix IV. We also met with NCUA to discuss their efforts to collect 
federal credit union executive compensation. 

[End of section] 

Appendix II: Analyses of Survey of Consumer Finances Data, 2001 and 
2004: 

Using the methodology that we employed in our prior report, data from 
the 2001 and 2004 releases of the Federal Reserve SCF that we analyzed 
indicated that credit unions continued to serve a lower proportion of 
low-income households than banks for the years analyzed.[Footnote 57] 
As we reported in 2003, we analyzed the SCF because it is a respected 
source of publicly available data on financial institution and consumer 
demographics that is nationally representative and because it was the 
only comprehensive source of publicly available data with information 
on financial institutions and consumer demographics that we could 
identify. While it is the best publicly available data that we could 
identify, there are limitations in SCF data that preclude drawing 
definitive conclusions about the income characteristics of credit union 
members. In an effort to provide greater context, in this appendix, we 
also present the results of additional analyses of the 2001 and 2004 
SCF data that we conducted. 

The SCF is conducted every 3 years and is intended to provide detailed 
information on the balance sheet, pension, income, and other 
demographics of U.S. households and their use of financial 
institutions.[Footnote 58] The survey is based on approximately 4,500 
interviews and represents a sample of more than 100 million households. 
For each of the 2001 and 2004 SCF releases, we combined the SCF data 
into two main groups--households that only and primarily used credit 
unions (credit union customers) and households that only and primarily 
used banks (bank customers).[Footnote 59] Our analyses of 2001 and 2004 
SCF data indicated that, among households that used a financial 
institution, those households that we identified as being bank 
customers outnumbered those that we identified as being credit union 
customers by a large margin (see table 7).[Footnote 60] Because such a 
high percentage of the U.S. population represented by the SCF only used 
banks, the data obtained from the SCF are particularly useful for 
describing characteristics of bank users but much less precise for 
describing smaller population groups, such as those that only used 
credit unions. It should be noted that SCF was not specifically 
designed to conduct comparative analyses of income levels of bank and 
credit union customers, and the pool of bank customers is not 
necessarily comparable to the pool of credit union customers. 

Table 7: Percentages of Households Classified as Using Banks or Credit 
Unions, 2001 and 2004: 

Financial institution usage: Only used credit unions; 
Percentage of households (among all households using a financial 
institution): 2001 SCF data: 8; 
Percentage of households (among all households using a financial 
institution): 2004 SCF data: 8. 

Financial institution usage: Primarily used credit unions; 
Percentage of households (among all households using a financial 
institution): 2001 SCF data: 13; 
Percentage of households (among all households using a financial 
institution): 2004 SCF data: 14. 

Financial institution usage: Primarily used banks; 
Percentage of households (among all households using a financial 
institution): 2001 SCF data: 17; 
Percentage of households (among all households using a financial 
institution): 2004 SCF data: 15. 

Financial institution usage: Only used banks; 
Percentage of households (among all households using a financial 
institution): 2001 SCF data: 62; 
Percentage of households (among all households using a financial 
institution): 2004 SCF data: 63. 

Sources: GAO and Federal Reserve. 

[End of table] 

We found that credit union customers had a higher median income than 
bank customers in both the 2001 and 2004 SCF releases. In the 2001 SCF, 
the median income of all households was $39,000; bank customers had a 
median income of $40,000 and credit union customers had a median income 
of $44,000. In the 2004 SCF, the median income of all households was 
$42,000; bank customers had a median income of $43,000 and credit union 
customers had a median income of $50,000. 

We computed the proportions of credit union customers and bank 
customers in each of four income categories--low, moderate, middle, and 
upper. As in our 2003 report, we based our income groups on income 
categories used by financial regulators for federal Community 
Reinvestment Act examinations in an effort to provide a consistent 
framework given that "modest means" is not clearly defined.[Footnote 
61] For our primary analysis of 2001 and 2004 SCF data, we used 2000 
and 2003 median household income as reported by the U.S. Census Bureau; 
for our additional analyses of 2001 and 2004 SCF data, we used 2000 and 
2003 median family income as reported by the U.S. Census Bureau (see 
tables 8 and 9). It should be noted that the categories that we use 
here, which we introduced in our 2003 report, are based on a national 
median income measure whereas the categories used for Community 
Reinvestment Act are based on more local measures. 

Table 8: Median Income Benchmarks Used for Primary (Household) and 
Additional (Family) Analyses of 2001 and 2004 SCF Data: 

Analysis: Primary; 
2001 median SCF family income: N/A; 
2001 median SCF household income: $42,151; 
2004 median SCF family income: N/A; 
2004 median SCF household income: $43,318. 

Analysis: Additional; 
2001 median SCF family income: $50,890; 
2001 median SCF household income: N/A; 
2004 median SCF family income: $52,680; 
2004 median SCF household income: N/A. 

Sources: GAO and U.S. Census Bureau. 

[End of table] 

Table 9: Income Categories for Primary (Household) and Additional 
(Family) Analyses of 2001 and 2004 SCF Data: 

Income category: Low; 
Primary analysis: Income less than 50 percent of the median household 
income (2001: less than $21,076; 2004: less than $21,659); 
Additional analysis: Income less than 50 percent of the median family 
income (2001: less than $25,445; 2004: less than $26,340). 

Income category: Moderate; 
Primary analysis: Income at least 50 percent and less than 80 percent 
of the median household income (2001: at least $21,076 but less than 
$33,721; 2004: at least $21,659 but less than $34,654); 
Additional analysis: Income at least 50 percent and less than 80 
percent of the median family income (2001: at least $25,445 but less 
than $40,712; 2004; at least $26,340 but less than $42,114). 

Income category: Middle; 
Primary analysis: Income at least 80 percent and less than 120 percent 
of the median household income (2001: at least $33,721 but less than 
$50,581; 2004: at least $34,654 but less than $51,982); 
Additional analysis: Income at least 80 percent and less than 120 
percent of the median family income (2001: at least $40,712 but less 
than $61,068; 2004: at least $42,144 but less than $63,216). 

Income category: Upper; 
Primary analysis: Income at least 120 percent or more of the median 
household income (2001: at least $50,581; 2004: at least $51,982); 
Additional analysis: Income at least 120 percent or more of the median 
family income (2001: at least $61,068; 2004: at least $63,216). 

Source: GAO. 

[End of table] 

As noted earlier in the report, our (primary) analysis of 2004 SCF data 
suggested that credit unions served a lower proportion of households of 
modest means (low-and moderate-income households, collectively) than 
banks, a result consistent with the finding in our 2003 report 
analyzing the 2001 SCF data (see tables 10 and 11). 

Table 10: Percentages in Each Income Category for Primary (Household) 
Analysis by Customer Type, 2001 SCF Data: 

Income category: Low; 
All SCF respondents: 27.0; 
Credit union customers: 16.4; 
Bank customers: 25.7. 

Income category: Moderate; 
All SCF respondents: 16.6; 
Credit union customers: 19.3; 
Bank customers: 16.1. 

Income category: Middle; 
All SCF respondents: 17.6; 
Credit union customers: 21.7; 
Bank customers: 17.5. 

Income category: Upper; 
All SCF respondents: 38.9; 
Credit union customers: 42.6; 
Bank customers: 40.7. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median household income for 2000. 

[End of table] 

Table 11: Percentages in Each Income Category for Primary (Household) 
Analysis by Customer Type, 2004 SCF Data: 

Income category: Low; 
All SCF respondents: 24.9; 
Credit union customers: 14.5; 
Bank customers: 24.2. 

Income category: Moderate; 
All SCF respondents: 16.6; 
Credit union customers: 16.6; 
Bank customers: 16.4. 

Income category: Middle; 
All SCF respondents: 17.8; 
Credit union customers: 20.2; 
Bank customers: 18.1. 

Income category: Upper; 
All SCF respondents: 40.7; 
Credit union customers: 48.8; 
Bank customers: 41.3. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median household income for 2003. 

[End of table] 

In an effort to determine how sensitive these results were to our 
income categorization, we also used the median family income for 2000 
and 2003 to analyze the 2001 and 2004 SCF data. As shown in tables 12 
and 13, the results from our additional analyses were similar to those 
of our primary analysis. While the median family income was higher than 
the median household income in each year, the results continue to 
suggest that a greater proportion of bank than credit union customers 
were of modest means. This difference between banks and credit unions 
was statistically significantly different from zero in the 2004 SCF; 
there was also a statistically significant decline in the proportion of 
credit union customers of modest means between the 2001 and 2004 SCF 
data. Thus, while the results of our analyses should not be considered 
definitive, they do suggest that any impact from the recent efforts by 
NCUA to increase credit union membership among the underserved and low- 
and moderate-income households have not yet appeared in the data. 

Table 12: Percentages in Each Income Category for Additional (Family) 
Analysis by Customer Type, 2001 SCF Data: 

Income category: Low; 
All SCF respondents: 33.8; 
Credit union customers: 23.2; 
Bank customers: 32.3. 

Income category: Moderate; 
All SCF respondents: 18.6; 
Credit union customers: 23.6; 
Bank customers: 18.2. 

Income category: Middle; 
All SCF respondents: 16.7; 
Credit union customers: 21.6; 
Bank customers: 16.5. 

Income category: Upper; 
All SCF respondents: 30.9; 
Credit union customers: 31.7; 
Bank customers: 33.1. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median family income for 2000. 

[End of table] 

Table 13: Percentages in Each Income Category for Additional (Family) 
Analysis by Customer Type, 2004 SCF Data: 

Income category: Low; 
All SCF respondents: 31.6; 
Credit union customers: 20.2; 
Bank customers: 31.0. 

Income category: Moderate; 
All SCF respondents: 18.6; 
Credit union customers: 21.1; 
Bank customers: 18.3. 

Income category: Middle; 
All SCF respondents: 18.1; 
Credit union customers: 20.6; 
Bank customers: 18.6. 

Income category: Upper; 
All SCF respondents: 31.7; 
Credit union customers: 38.2; 
Bank customers: 32.2. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median family income for 2003. 

[End of table]

We also considered the median income of bank and credit union customers 
within each of our income categories for both the primary and 
additional analyses to assess whether there were any notable 
differences between credit union and bank customers (see tables 14 
through 17). We found that the income characteristics of the customers 
tended to be similar; however, the median income in the upper-income 
category tended to be higher for bank customers. 

Table 14: Median Income within Each Income Category for Primary 
(Household) Analysis by Customer Type, 2001 SCF Data: 

Income category: Low; 
Median income within category: Credit union customers: $13,000; 
Median income within category: Bank customers: $13,000. 

Income category: Moderate; 
Median income within category: Credit union customers: 28,000; 
Median income within category: Bank customers: 27,000. 

Income category: Middle; 
Median income within category: Credit union customers: 40,000; 
Median income within category: Bank customers: 41,000. 

Income category: Upper; 
Median income within category: Credit union customers: 74,000; 
Median income within category: Bank customers: 83,000. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median household income for 2000. 

[End of table] 

Table 15: Median Income within Each Income Category for Primary 
(Household) Analysis by Customer Type, 2004 SCF Data: 

Income category: Low; 
Median income within category: Credit union customers: $13,000; 
Median income within category: Bank customers: $13,000. 

Income category: Moderate; 
Median income within category: Credit union customers: 28,000; 
Median income within category: Bank customers: 28,000. 

Income category: Middle; 
Median income within category: Credit union customers: 42,000; 
Median income within category: Bank customers: 43,000. 

Income category: Upper; 
Median income within category: Credit union customers: 86,000; 
Median income within category: Bank customers: 86,000. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median household income for 2003. 

[End of table] 

Table 16: Median Income within Each Income Category for Additional 
(Family) Analysis by Customer Type, 2001 SCF Data: 

Income category: Low; 
Median income within category: Credit union customers: $16,000; 
Median income within category: Bank customers: $15,000. 

Income category: Moderate; 
Median income within category: Credit union customers: 33,000; 
Median income within category: Bank customers: 33,000. 

Income category: Middle; 
Median income within category: Credit union customers: 51,000; 
Median income within category: Bank customers: 50,000. 

Income category: Upper; 
Median income within category: Credit union customers: 83,000; 
Median income within category: Bank customers: 98,000. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median family income for 2000. 

[End of table] 

Table 17: Median Income within Each Income Category for Additional 
(Family) Analysis by Customer Type, 2004 SCF Data: 

Income category: Low; 
Median income within category: Credit union customers: $17,000; 
Median income within category: Bank customers: $15,000. 

Income category: Moderate; 
Median income within category: Credit union customers: 34,000; 
Median income within category: Bank customers: 34,000. 

Income category: Middle; 
Median income within category: Credit union customers: 52,000; 
Median income within category: Bank customers: 51,000. 

Income category: Upper; 
Median income within category: Credit union customers: 97,000; 
Median income within category: Bank customers: 101,000. 

Sources: GAO and Federal Reserve. 

Note: Income benchmark is the median family income for 2003. 

[End of table] 

[End of section] 

Appendix III: Comparison of Interest Rates at Credit Unions and Banks: 

Data that we obtained indicate that credit unions offer more favorable 
rates on average than similarly sized banks for a number of savings 
products and consumer loans. However, similarly sized credit unions and 
banks appeared to offer virtually the same rates on mortgage loans, 
such as 15-and 30-year fixed-rate mortgages. We engaged the services of 
Datatrac Corporation--a market research and information technology 
company, specializing in the financial services industry--to gather and 
analyze data on loan and savings rates for 15 loan and savings products 
(5 consumer loan, 3 mortgage loan, and 7 savings products) that were 
offered from 2000 through 2005 at about 2,000 credit unions and 4,000 
banks.[Footnote 62] Financial institutions voluntarily provide data to 
Datatrac on a weekly basis for inclusion in the company's database. 
Therefore, information presented is not necessarily statistically 
representative of the entire banking and credit union industry. 

Datatrac calculated the average rates for each of these products by 
five distinct asset size peer groups: 

* total assets of $100 million or less; 

* total assets greater than $100 million, but less than or equal to 
$250 million; 

* total assets greater than $250 million, but less than or equal to 
$500 million; 

* total assets greater than $500 million, but less than or equal to $1 
billion; and: 

* total assets greater than $1 billion, but less than or equal to the 
asset size, rounded up to the nearest billion dollars, of the largest 
credit union. 

Datatrac computed average rates for institutions overall and for all 
institutions within analysis groups. In computing these simple 
averages, individual institution rates were not weighted to reflect 
loan volume or other measures of size. While Datatrac Corporation's 
database contained data provided by about 2,000 credit unions and 4,000 
banks, data were not always obtained from all the credit unions and 
banks for every product and/or time period in each of the five asset 
groupings. We identify all instances in which the information presented 
was based on rate data provided by less than 10 institutions. 
Additionally, because averages based on a small number of institutions 
may be unreliable, we did not report instances when rate data was 
provided by less than 5 institutions. 

Figures 7 through 23 provide a detailed comparison of rates on savings 
and loan products offered by credit unions to those at similarly sized 
banks for the 6-year period spanning from 2000 to 2005. 

Figure 7: Comparison of Interest Rates for Savings Products at December 
31, 2000, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 8: Comparison of Interest Rates for Savings Products at December 
31, 2001, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 9: Comparison of Interest Rates for Savings Products at December 
31, 2002, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 10: Comparison of Interest Rates for Savings Products at 
December 31, 2003, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 11: Comparison of Interest Rates for Savings Products at 
December 31, 2004, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 12: Comparison of Interest Rates for Savings Products at 
December 31, 2005, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 13: Comparison of Interest Rates of Consumer Loans at December 
31, 2000, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

Note: Data is not reported for credit card (classic) and banks with 
$100 million or less due to an insufficient number of reporting 
institutions (less than 5). 

[A] Data is based on responses of less than 10 institutions. 

[End of figure] - graphic text: 

Figure 14: Comparison of Interest Rates of Consumer Loans at December 
31, 2001, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 15: Comparison of Interest Rates of Consumer Loans at December 
31, 2002, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 16: Comparison of Interest Rates of Consumer Loans at December 
31, 2003, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 17: Comparison of Interest Rates of Consumer Loans at December 
31, 2004, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 18: Comparison of Interest Rates of Consumer Loans at December 
31, 2005, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 19: Comparison of Interest Rates of Mortgage Products at 
December 31, 2000, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[A] Data is based on responses of less than 10 institutions. 

[End of Figure] - graphic text: 

Figure 20: Comparison of Interest Rates of Mortgage Products at 
December 31, 2001, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 21: Comparison of Interest Rates of Mortgage Products at 
December 31, 2002, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 22: Comparison of Interest Rates of Mortgage Products at 
December 31, 2003, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 23: Comparison of Interest Rates of Mortgage Products at 
December 31, 2004, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

Figure 24: Comparison of Interest Rates of Mortgage Products at 
December 31, 2005, by Asset Size: 

[See PDF for image] - graphic text: 

Source: GAO and Datatrac. 

[End of figure] - graphic text: 

[End of section] 

Appendix IV: Selected Salary Surveys for Credit Union and Bank 
Executives: 

Credit union and bank survey information we obtained provides an 
indication of executive base salaries for the respective industries. 
The credit union and bank salary survey data we identified had a key 
limitation--the information was not directly comparable because of 
differences in the underlying sampling strategies and data gathering 
methodologies. Also, while both surveys report the types of cash 
compensation received for their industry executives (i.e., salary and 
bonuses), we were not able to identify and compare other forms of 
benefits that an executive might typically receive in a compensation 
package. 

There were a number of other limitations in the data that we 
identified. In some instances, the information collected for each of 
the surveys involved a sample of members belonging to their respective 
trade group associations. The data collection periods for each of the 
surveys were different. For instance, the credit union survey collected 
salary information between January and May 2005, while the bank survey 
collected information during 2004. The bank survey also provides 
general information on other benefits such as savings incentive plans, 
pension plans, and paid time off benefits for which we do not have 
comparable information in the credit union survey. Also, cash 
compensation reported for the credit union survey includes base salary, 
incentives, and bonuses, while the bank survey reported base salary, 
bonus, and profit sharing compensation. Finally, the cash compensation 
information presented for these surveys are grouped in different asset 
size ranges. The credit union survey presents information based on 13 
asset size categories, while the bank survey presents information based 
on 7 asset size categories. 

Credit Union Salary and Other Cash Compensation Data: 

According to the Credit Union National Association's 2005 to 2006 
Complete Credit Union Staff Salary Survey, the average base salary of 
credit union presidents, chief executive officers (CEO), and managers 
for those credit unions responding increased 4.8 percent from the 
previous year's survey. In addition to base salary, more than half (55 
percent) of credit union presidents, CEOs, and managers also received 
other forms of cash compensation such as incentives or bonuses. For 
CEOs, incentives averaged $9,634, while bonuses averaged $4,993. The 
survey also noted that bonuses continue to be more common than 
incentives (45 percent compared with 5 percent receiving these 
payments, respectively in 2004). As shown in figure 25, the average 
credit union base salary for the CEO position was about $78,000 while 
the average base salaries for the chief financial officers (CFO) and 
chief operations officers (COO) was approximately $73,000 and $64,000, 
respectively. However, national averages should be viewed with care 
since executive salaries also vary by region and the size of the credit 
union. 

Figure 25: Credit Union Executive Average Base Salaries for 2005: 

[See PDF for image] - graphic text: 

Source: GAO analysis of CUNA survey data. 

[End of figure] - graphic text: 

Similarly, according to the survey for those credit unions responding, 
credit union executives, including CFOs and COOs, experienced about a 2 
percent increase in average salary over the previous year. Of those 
that responded to the survey, approximately 27 percent of CFOs received 
incentives, which averaged $5,963, and 38 percent received a bonus 
which averaged $4,650. Additionally, approximately 21 percent of COOs 
received incentives which averaged $5,678, while 47 percent received a 
bonus that averaged $3,578. 

The number of responses for the survey questions on the three credit 
union executive positions also varied from question to question and 
across the different asset categories. For instance, a total of 773 
credit unions responded to the president/CEO question, but the 
responses by asset category ranged from a low of 16 responses by credit 
unions with assets of $1 to $2 million to a high of 113 responses by 
credit unions with assets of $100 to $200 million.[Footnote 63] A total 
of 330 credit unions responded to the CFO question, while the responses 
by asset category ranged from a low of 2 responses by credit unions 
with assets of $5 to $10 million to a high of 74 responses by credit 
unions with assets of $100 to $200 million. Finally, 268 credit unions 
responded to the COO question, while the responses by asset category 
ranged from a low of 2 responses by credit unions with assets of $5 to 
$10 million to a high of 65 responses by credit unions with assets of 
$100 to $200 million. 

Bank Salary and Other Cash Compensation Data: 

According to America's Community Bankers 2005 Compensation Survey, the 
national average base salary for those banks responding to the survey 
for CEOs was up 13.2 percent from the 2004 reported average. The 
average bonus/profit sharing payment for CEOs was $73,129. Similarly, 
the national average base salary for those banks responding for CFOs 
was up 10.8 percent from 2004, while the average bonus/profit sharing 
compensation was $28,700. The base salary for those banks responding 
for COOs was up 8.8 percent from 2004, while the average bonus/profit 
sharing compensation was $32,697. As shown in figure 26, the average 
bank base salary for the CEO position was about $213,000 while the 
average base salaries for the CFO and COO was approximately $121,000 
and $141,000 respectively. As mentioned previously, national averages 
should be viewed with care since executive salaries also vary by region 
and by asset size. 

Figure 26: Bank Executive Average Base Salaries in 2004: 

[See PDF for image] - graphic text: 

Source: GAO analysis of ACB survey data. 

[End of figure] - graphic text: 

The bank executive survey responses also varied by the total number of 
respondents and by the different asset categories.[Footnote 64] For 
instance, a total of 358 banks responded to the president/CEO question, 
while the responses by asset category ranged from a low of 16 banks 
with assets up to $50 million to a high of 74 banks with assets of $101 
to $200 million. A total of 256 banks responded to the CFO question, 
while the number of responses by asset category ranged from a low of 2 
banks with assets up to $50 million to a high of 49 responses by banks 
with assets of $501 million to $1 billion. Finally, 187 banks responded 
to the COO question, while the response rates by asset category ranged 
from a low of 8 banks with assets up to $50 million to a high of 38 
banks in both the $101 to $200 million and $501 million to $1 billion 
categories. Due to the small number of responses in some instances, the 
results of this data should be viewed with caution. 

[End of section] 

Appendix V: Comments from the National Credit Union Administration: 

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

National Credit Union Administration: 

November 14, 2006: 

Yvonne D. Jones: 
Director, Financial Markets and Community Investments: 
Government Accountability Office: 
441 G St., NW: 
Washington, DC 20548: 

Dear Ms. Jones: 

Thank you for the opportunity to review and comment on the draft GAO 
Report (Report) entitled "Greater Transparency Needed on Who Credit 
Unions Serve and on Senior Executive Compensation Arrangements." On 
behalf of the National Credit Union Administration (NCUA), I would like 
to express our appreciation for the professionalism of your staff and 
our gratitude for the dialogue that occurred through the course of 
GAO's study. NCUA believes that dialogue was helpful in developing a 
better mutual understanding of the complexity of the issues addressed 
in the Report and the conflicts that arise when considering the mission 
and purpose of federal credit unions (FCU) in the context of today's 
financial marketplace. 

It is unfortunate GAO did not have available at the time of drafting 
the Report the results of NCUA's Member Service Assessment Pilot 
Program (MSAP) (Enclosure 1), since MSAP includes significant new data 
on FCUs. Importantly, MSAP provides meaningful and accurate information 
on FCU membership profiles, as well as an assessment of the data 
collected. This assessment is critical for an objective analysis of the 
data. It also demonstrates any conclusions reached must consider FCU 
structure and operations, and the significant differences between other 
financial institutions and FCU charter types. 

As outlined in greater detail in the enclosed response to the Report 
(Enclosure 2), NCUA does have continued concerns with certain important 
aspects of the Report. NCUA believes that a meaningful comparison 
between FCUs and other financial institutions must include an in-depth 
assessment of their structural and governance differences. Furthermore, 
comparisons among FCUs must consider charter types and field of 
membership differences. These substantive differences significantly 
impact who credit unions serve, how they operate and provide services, 
how they develop and maintain their net worth and working capital, and 
how they affect the continued viability of the FCU system. Such a 
framework is missing in the Report, thus limiting its reliability. 

NCUA also believes it is inaccurate and inappropriate to measure the 
success of FCUs in serving persons of modest means by reference only to 
the low-and moderate-income categories associated with the Community 
Reinvestment Act (CRA), as these categories only extend to families at 
or below 80 percent of the median income. There is ample legal and 
historical evidence that the term modest means, as used by Congress in 
the context of the FCU Act, is intended to include both below average 
wage earners and a broader class of working individuals generally. 
Further, GAO elected to use income category benchmarks that are 
inconsistent with the specific definitions of the CRA categories used 
by the other federal financial regulators. Using broad income 
categories and equating modest means to low-and moderate-income 
individuals precludes a valid assessment of the economic demographics 
of FCU membership. 

Additionally, NCUA has serious concerns about the reliability of 
conclusions reached using the Federal Reserve's Survey of Consumer 
Finance (SCF) data. The SCF was not designed for reliable income 
comparisons between credit union members and bank customers. Other 
concerns, addressed in Enclosure 2, include the importance of credit 
union membership limits, the effects of recent trends in community 
chartering, and proper recognition of NCUA's efforts to target services 
to lower income individuals. 

Regarding the recommendations made in the Report, NCUA staff 
recommended in MSAP that the NCUA Board consider whether it is 
appropriate to gather additional membership data to further enhance 
NCUA's efforts in expanding credit union service to low-and moderate- 
income individuals. NCUA staff also recommended that the NCUA Board 
consider evaluating alternative approaches to collecting and 
aggregating executive compensation on an FCU system basis. 

Notwithstanding the continued concerns listed above and described in 
greater detail in Enclosure 2, I again want to emphasize our great 
appreciation for the efforts of your staff and their willingness to 
consider our concerns and engage in open and meaningful dialogue. 

Sincerely, 

Signed by: 

J. Leonard Skiles: 
Executive Director: 

Enclosures: 
1. Report to the NCUA Board on the Member Service Assessment Pilot 
Program (MSAP), dated November 3, 2006: 
2. NCUA's Detailed Response to GAO's Draft Report GAO-07-29: 

NCUA's Detailed Response to GAO Draft Report GAO-07-29 "Greater 
Transparency Needed on Who Credit Unions Serve and on Senior Executive 
Compensation Arrangements" 

The following discussion addresses our primary concerns with the GAO 
Draft Report, GAO-07-29 (Report). These concerns include: (1) 
inaccurate use of low-and moderate-income as a proxy for modest means; 
(2) inappropriate use of income categories ostensibly based on CRA 
categories; (3) improper reliance on the Federal Reserve's Survey of 
Consumer Finance; (4) insufficient discussion of the structure and 
framework of FCUs; (5) insufficient discussion of NCUA's efforts to 
enhance service to low-and moderate-income individuals; and (6) 
incomplete data on executive compensation. 

1. GAO's Definition of "modest means" 

It is inaccurate for GAO to define the term modest means as only 
including low-and moderate-income individuals. To use a proxy 
definition for modest means, although convenient for drafting the 
Report, contradicts clear congressional intent and disregards important 
statutory mandates on whom FCUs can serve. NCUA strongly believes that 
using the terms modest means and low-and moderate-income individuals 
interchangeably creates confusion and a perception inconsistent with 
statutory intent and regulatory policies put in place to achieve that 
intent. 

While the Report recognizes in footnote 30 on page 26 that there is no 
commonly accepted definition of modest means, the following statement 
on page 6 equates low-and moderate-income to modest means: 

[T]he Federal Reserve's 2004 Survey of Consumer Finance (SCF) - - 
indicates that credit unions continued to lag behind banks in the 
percentage of their customers or members that were of low-and moderate- 
income households. Our analysis of the 2004 SCF indicated that 32 
percent of households that only and primarily used credit unions were 
of modest means (emphasis added). 

The history of the Credit Union Membership Access Act of 1998 
(CUMAA)[Footnote 65] demonstrates congressional intent when the term 
"modest means" was used. This term was first introduced in proposed 
amendments to the FCU Act in 1998 describing the mission of credit 
unions. Although these amendments were not adopted in the final version 
of CUMAA, the House Report accompanying the proposed bill noted: 
"Section 204 reaffirms the continuing and affirmative obligation of 
insured credit unions to meet the financial services needs of persons 
of modest means, including those with low-and moderate-incomes, 
consistent with safe and sound operation."[Footnote 66]   

The Senate Report followed a similar usage in referring to section 204 
of the bill. Specifically, the Senate Report also discussed the calling 
of credit unions to serve the entire range of membership and to provide 
"affordable credit union services to all individuals of modest means, 
including those with low-and moderate-incomes, within the field of 
membership of such credit union."[Footnote 67]

These congressional views reflect the clear understanding that the term 
modest means indicates a meaning broader than individuals with low-and 
moderate-income, and those that meet the definition of modest means 
must also be within the field of membership (FOM). In this respect, the 
term, though not specifically defined, conforms explicitly with its 
earlier counterpart, "small means," as a shorthand reference to members 
of the broad working class. 

CUMAA also served notice that outreach programs to reach low-and 
moderate-income individuals, and the support for credit unions 
designated to serve low-income memberships, should still continue. 
Additional authorities granted to low-income designated credit unions, 
and the ability for multiple common bond FCUs to adopt underserved 
areas are also consistent with a more expansive definition for modest 
means. 

2. Use of CRA-type definitions for income levels: 

The Report, in footnote 27 on page 24, provides an explanation for the 
use of the Federal Reserve's Survey of Consumer Finance (SCF) and 
income categories, and states: 

We [GAO] based our groups on income categories used by financial 
regulators for federal Community Reinvestment Act examinations intended 
to encourage depository institutions to help meet credit needs in all 
areas of the communities that they serve: (1) a low-income household 
had an income of less than 50 percent of the national median household 
income, (2) a moderate-income had an income of at least 50 percent of 
but less than 80 percent of the national median household income; (3) a 
middle-income household had an income of at least 80 percent of but 
less than 120 percent of the national median household income; and (4) 
an upper-income household had an income of at least 120 percent of the 
national median household income. 

This footnote does not accurately reflect the income categories 
established by the federal financial regulators for CRA examinations 
and contradicts Table 5 in Appendix I of the Report. The income 
categories identified in the Code of Federal Regulations for CRA 
purposes are based on median family income as a percent of metropolitan 
statistical area (local area) median family income.[Footnote 68] The 
income categories utilized in the Report use median household income as 
a percent of national (not local area) median household income. 
Although the Report utilizes median family income in its additional 
analysis, this not only contradicts the SCF's methodology, but also 
does not correct for CRA inconsistency. Consequently, the statement 
that the income levels used are similar to those used in other 
governmental programs is misleading and implies the analyses are based 
on CRA income categories when, in fact, the income categories are GAO-
defined. 

Additionally, footnote 27 illustrates CRA is intended to "encourage 
depository institutions to help meet credit needs in all areas of the 
communities that they serve. . ." Given 80 percent of FCUs are 
occupational or associational based, the CRA-type categories have 
limited, if any, applicability for the assessment of FCUs. 

3. Basing Assessment on the Federal Reserve's Survey of Consumer 
Finance: 

NCUA recognizes the lack of reliable data to serve as a basis for valid 
conclusions regarding income distribution of FCU members at the time of 
the drafting of the Report. NCUA also accepts that the SCF was the only 
source of data available that provided income figures, albeit of 
limited application, for FCU members.[Footnote 69] As correctly pointed 
out by GAO, the SCF was not designed to analyze credit union member 
income distribution or make comparisons between credit union members 
and bank customers. For example, the SCF does not provide proportional 
representation of credit union members and bank customers necessary to 
develop valid conclusions pertaining to income distribution. 
Notwithstanding these known deficiencies, the SCF is the primary source 
for the conclusions reached in the Report, which has the potential for 
misleading assessments about whom credit unions serve compared to 
banks. 

Additionally, throughout this study NCUA discussed with GAO various 
means of presenting the SCF data. In NCUA's view, the use of a single 
chart, on page 27 in the body of the Report, using broad income 
categories, limits the reader's ability to draw objective conclusions. 
Although Appendix I includes additional comparisons, they are also 
insufficient for providing a comprehensive view of member incomes. 

The use of additional tables, in the body of the report, depicting the 
same data in various ways would have allowed a more complete view of 
member incomes. For example, the Federal Reserve uses income 
percentiles in its assessment of the SCF, which provides a more 
objective presentation of income distribution than the broad income 
categories used in the Report. Table 1 presents the data used in the 
Report based on these income percentiles. 

Table 1[Footnote 70]: Percent of Members/Customers within Income 
Percentile: 

Primary and only users: Percentile of Income: Income pct < 20; 
Primary and only users: Annual Income Ranges: $0 to $18,900; 
2003: Credit Unions: 11.5%; 
2003: Banks: 19.2%. 

Primary and only users: Percentile of Income: Income pct. 20=39.; 
Primary and only users: Annual Income Ranges: $18,901 to $33,900; 
2003: Credit Unions: 18.8%; 
2003: Banks: 20.0%. 

Primary and only users: Percentile of Income: Income pct. 40-59.9; 
Primary and only users: Annual Income Ranges: $33,901 to $53,600; 
2003: Credit Unions: 23.2%; 
2003: Banks: 20.7%. 

Primary and only users: Percentile of Income: Income pct: 60-79.9; 
Primary and only users: Annual Income Ranges: $51,601 to $89,300; 
2003: Credit Unions: 24.8%; 
2003: Banks: 20.2%. 

Primary and only users: Percentile of Income: Income pct: 80-89.9; 
Primary and only users: Annual Income Ranges: $89,301 to $129,400; 
2003: Credit Unions: 13.2%; 
2003: Banks: 9.4%. 

Primary and only users: Percentile of Income: Income pct: 90-100; 
Primary and only users: Annual Income Ranges: >$129,400; 
2003: Credit Unions: 8.5%; 
2003: Banks: 10.6%. 

[End of table] 

Further, including both average and median incomes for comparative 
purposes, rather than using only median as reflected in the Report, 
provides for a more complete view of member incomes. According the SCF 
results and as demonstrated in Table 2, while credit union members have 
the highest median income, bank customers have the highest average 
income. 

Table 2[Footnote 71] Median and Average Income Comparison, 2003. 

Median; 
Total SCF: $42,000; 
Credit Union: $50,000; 
Banks: $43,000. 

Average; 
Total SCF: $68,778; 
Credit Union: $62,572; 
Banks: $74,211. 

[End of table] 

There are also technical inconsistencies in the Report's methodology. 
For example, as stated on page 28: "To determine how sensitive our 
[GAO's] results were to our income categorization, we used median 
family income in addition to median household income to analyze the 
2001 and 2004 SCF data. We found similar results using both median 
family and household income." However, this comparison does not 
accomplish its stated objective. The use of the median family income 
for comparison is inconsistent with the SCF methodology, which utilized 
median household income. Therefore, this comparison does not add 
validity to the results of the study since it only changes the 
comparative benchmark. 

4. Providing a limited framework for credit union membership 
assessment: 

Although the Report correctly recognizes that credit unions retain 
their distinction in terms of structure and governance, it does not 
provide a framework that would allow for an appropriate interpretation 
of the assessments presented. For example, factual background 
information about credit unions and their important differences from 
banks, which is vital for an understanding of this issue, is not 
adequately addressed. To fully understand and assess any data that 
attempts to compare credit union members with depositors in other types 
of financial institutions, the Report should include discussion of the 
following: 

A. Statutory limitations on FCU membership: 

MSAP data confirms the importance of the statutory mandate concerning 
common bond when assessing membership profiles. It also confirms that 
comparisons with other financial institutions, as well as among 
different charter-types of FCUs, are difficult. FCUs are chartered as 
cooperatives to serve individuals only within their FOM. They are, 
therefore, limited in whom they can serve and are restricted to the 
income composition of the individuals within their allowed FOM. It is 
misleading to draw definitive conclusions about the success of FCUs in 
serving individuals and groups outside their traditional membership 
base without fully focusing on their authorized FOMs. This is 
particularly important in view of the fact that, as of December 2005, 
approximately 80 percent of all FCUs had single-or multiple-common bond 
charter types based on occupation or association. The implication of 
this FOM concentration, based primarily on working individuals, is far 
reaching within the context of assessing the membership profile of 
FCUs. 

Understanding statutory limitations on who can join FCUs is critical in 
conducting an objective assessment of the FCU system membership 
profile, any policy consideration on who benefits from credit union 
services, and the impact of FCUs on the financial sector. The statutory 
limitations also emphasize the differences between FCUs and banks and 
draw into question the reasonableness of any general comparison between 
income distribution of FCU members and bank customers. To conduct a 
reasonable comparative assessment of whom FCUs and banks serve, both 
types of institutions would need to have a similar structure and other 
characteristics. Although community-chartered FCUs and community banks 
may share some similarities relative to location, structurally, 
community-chartered FCUs remain cooperatives with the limitations of 
building capital/net worth, geographic constraints, and numerous other 
restrictions. 

The Report provides an extensive review of the characteristics and 
growth patterns of community-chartered FCUs. However, the proportion of 
FCUs that are community-chartered, the need for charter conversions to 
ensure continued viability, and the challenges community-chartered FCUs 
face when converting from a single or multiple common bond charter, as 
well as other issues, are not thoroughly addressed. For example: 

1. Despite recent growth in FCU community charters, they still only 
represent approximately 20 percent of FCUs and 30 percent of FCU 
membership. This is a significant portion of the FCU system, but, as 
noted in the Report, this growth has primarily been within the last 
five years. Additionally, it should be emphasized that much of this 
growth is a result of FCUs converting from an already existing 
occupational or associational FOM. Instead, the Report concentrates on 
the growth of this subset when characterizing the entire FCU system, in 
particular the perceived "blurring" of the distinction between FCUs and 
other depository institutions. 

2. A thorough assessment of the causes for the recent community charter 
conversions is not provided. The primary reason for these conversions 
has been to ensure continued viability of FCUs in changing economic and 
financial industry environments. A review of several examples documents 
this point. Clearview FCU (formally US Airways); Bethpage FCU (formally 
Grumman); JAX FCU (formally Jacksonville Naval Base); and New 
Cumberland FCU (formally New Cumberland Army Depot Defense Distribution 
Center) all converted to community charters in response to changes in 
their primary sponsors. 

3. The time necessary to successfully implement a different business 
model when converting to a community charter is not adequately 
addressed. This is critical since the cutoff for the SCF data is 2003, 
yet the period under review extends to and includes 2005. Consequently, 
the SCF does not allow for an assessment of any appreciable changes 
based on the recent growth of FCU community charters, as the majority 
of the conversions to a community charter have occurred since 2000, and 
192 have occurred since 2003. Since the growth of community charters is 
discussed at length, it should also be fully explained that relative to 
the overall issue of reaching out to low-and moderate-income 
individuals, the impact of this growth can not be expected to be 
represented in the SCF data. Because the SCF does not overlay the time 
period of the review, its relevance is further diminished. 

4. The intent of NCUA's regulations pertaining to community charters is 
not accurately described. On page 1 the Report states: "As a result of 
recent legal and regulatory developments, field of membership 
requirements for credit unions have been relaxed - member groups now 
can include anyone who lives, works, worships, or attends school in 
areas as large as whole counties or major metropolitan areas." This 
statement suggests that the affinity requirement (lives, works, 
worships.) of NCUA's field of membership rules and the geographic 
limits on community charters are recent developments. That suggestion 
is not accurate. Both of these NCUA regulatory policies predate CUMAA. 
NCUA did grant community charters prior to CUMAA that encompassed whole 
counties and metropolitan areas. It is true that the documentation 
requirements for single political jurisdictions were reduced through 
regulatory amendments that post-dated CUMAA, but that change was based 
on NCUA's experience in chartering communities constituting a single 
political jurisdiction. 

5. The size and extent of the community charters approved by NCUA are 
not appropriately represented. By using the approval of Los Angeles 
County, on page 13, as an example of a community charter conversion, it 
misrepresents the size of the community charter conversions commonly 
authorized. The data provided to GAO reflects the average population 
size for those community charter conversions approved during the period 
from 2000 to 2005 was 304,886, and the median size was 125,000. 

6. The Report states in the Highlights, as well as on page 6 and 
elsewhere, that NCUA's change in chartering policy is "triggered partly 
by concerns about competing with states with more expansive credit 
union chartering rules. . ." It is inaccurate to indicate that FOM 
parity with state-chartered credit unions is a primary objective when 
revising FOM policies for FCUs. Although this issue has surfaced during 
the regulatory comment period on proposed policy changes, it has not 
been a factor in NCUA's policy making. 

C. The size and market share comparison of credit unions and banks: 

Although the Report attempts to compare credit unions to banks, it does 
not provide a framework for an objective analysis, which, in addition 
to the membership limitations discussed above, should reflect the 
relative industry position of the two types of financial institutions. 

As with all institutions in the financial industry, FCUS have evolved 
to ensure their continued viability. Since 1934, dramatic changes in 
the overall economic environment in which FCUs must operate have 
occurred. These changes have required that FCUs adapt in order to meet 
the financial needs and expectations of their members. Specifically, in 
the last forty years, changing demographics in the United States were 
characterized both by the loss of numerous well-paying blue collar jobs 
in the manufacturing sector and an increasing disparity in the income 
range between persons in the working class and the upper class. 
Operational evolution can be seen at several levels, including the 
offering of a wider range of services to a more broadly defined FOM. 
Fundamentally, however, even though some FOMs are broader today, FCUs 
have adhered to and preserved the integrity of both the common bond and 
their cooperative structure, which is reflected in regulatory policies. 

In addition, the types of services FCUs now increasingly offer have 
changed. As with the common bond, FCUs have found it necessary to adapt 
in order to meet member expectations and demand for products and 
services. On page 1 the Report states "credit unions are now allowed to 
offer many products and services similar to those provided by banks, 
such as real estate and business loans." Such a conclusion, however, 
fails to adequately assess the changing economic environment. Further, 
this statement misrepresents the services credit unions have 
historically provided. FCUs, for example, have been offering member 
business loans since their inception, often providing loans to 
entrepreneurs initiating a small business. As to the issue of mortgage 
lending, the FCU Act first authorized mortgage lending for FCUs in 
1978. State-chartered credit unions in several states, most notably in 
the New England area, have provided this type of lending since the 
1950s. 

In regard to rate comparisons, the Report recognizes the rate 
differences between banks and credit unions on savings and lending 
products. However, it should further recognize the interest rate 
environment during the period of the GAO review when interest rates 
were at historic lows. An assessment of the interest rate environment 
alone may have explained the reason for the decreasing gap in the rate 
paid on savings. This analysis is also crucial in assessing the 
mortgage rates since these loans of long-term maturity significantly 
affect the assett/liability management and ultimately the safety and 
soundness of a financial institution. 

Additionally, as shown in Table 3, credit unions are an important, but 
relatively small, segment of the financial industry. This size 
disparity draws into question the appropriateness of the comparison and 
conclusions in the Report. 

Table 3: 

Year: 2005; 
Total Federally Insured Deposits: 7,718,597; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Commercial Banks: 6,073,333; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Savings Banks: 1,067,845; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Total FDIC Insured: 7,141,178; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: % of Total: 92.5%; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: Federal Credit Union: 321,831; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: State Credit Union: 255,588; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: Total NCUSIF Insured: 577,419; 
% of Total: 7.5%. 

Year: 2004; 
Total Federally Insured Deposits: 7,140,323; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Commercial Banks: 5,592,825; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Savings Banks: 991,376; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Total FDIC Insured: 6,584,201; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: % of Total: 9202%; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: Federal Credit Union: 308,318; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: State Credit Union: 247,804; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: Total NCUSIF Insured: 556,122; 
% of Total: 7.8%. 

Year: 2003; 
Total Federally Insured Deposits: 6,482,630; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Commercial Banks: 5,028,866; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Savings Banks: 925,423; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: Total FDIC Insured: 5,954,289; 
Banks and Other Financial Institutions Insured by Federal Deposit 
Insurance Corporation[Footnote 72]: % of Total: 91.8%; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: Federal Credit Union: 291,485; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: State Credit Union: 236,856; 
Credit Unions Insured by NCUSIF (Federally Insured Credit 
Unions)[Footnote 73]: Total NCUSIF Insured: 528,341; 
% of Total: 8.2%. 

[End of table] 

NCUA also has concerns relating to the asset groups used in the Report 
for the comparison between banks and credit unions. The smallest group 
size used for comparative purposes in the Report is $100 million or 
less in assets. It is not disclosed, however, that approximately 88 
percent of FCUs fall into that category, with 80 percent having assets 
less than $50 million as of September 30, 2005. It should also be noted 
that the average asset size of FCUs is $73.2 million with the median 
asset size just $11 million. 

5. NCUA's efforts to target credit union services to low-and moderate- 
income individuals: 

One of GAO's stated objectives was to review NCUA's efforts to expand 
credit union services to individuals of low-and moderate-income. The 
Report correctly focuses on two principal programs in this context: (1) 
NCUA's Low-Income Credit Union (LICU) program; and (2) NCUA's strategic 
efforts to encourage FCUs to expand services into specifically 
designated underserved areas. It also correctly notes that NCUA's 
support for these programs has resulted in increased participation in 
both programs by FCUs in recent years. 

It is, however, inaccurate and inappropriate to use these programs to 
define and assess service to people of modest means as they are 
specifically targeted to low-income individuals. The legislative 
history of the law creating the LICU program indicates that its purpose 
was "to encourage saving and provide access to credit for low-income 
persons, and to bring consumer education into poverty areas. . . 
."[Footnote 74] This congressional action reflects recognition that the 
low-income segment of the community is less financially capable, 
without assistance or special consideration, of supporting a credit 
union bound by the traditional constraints of common bond and 
cooperative structure. With its focus on the new term "low income," 
Congress acknowledged that the traditional FCU membership base must 
necessarily be different, and broader. Although Congress recognized the 
difference, it did not believe an amendment to the overall statutory 
purpose for FCUs, which at that time was service to persons of "small 
means," was required. 

Instead, Congress implicitly endorsed FCU service to the traditional 
membership base and specifically directed that NCUA should supply its 
own definition of low income for purposes of implementing the 
provisions of the new law. By regulation, NCUA did so, specifying that 
the term low income means individuals who make less than either 80 
percent of the average for all wage earners, as established by the 
Bureau of Labor Statistics, or whose household income is at or below 80 
percent of the national median household income as established by the 
Census Bureau.[Footnote 75] 

To qualify for low-income designation, a credit union must have more 
than 50 percent of its membership consisting of individuals defined as 
low income. This was a specific initiative by NCUA to recognize credit 
unions that predominately served a low-income population but were 
challenged in providing additional services and/or programs to their 
members. This initiative opened opportunities for these credit unions 
to obtain additional capital from philanthropic organizations and 
assistance from the Department of the Treasury's Community Development 
Financial Institution Fund (CDFI), the NCUA's Community Development 
Revolving Loan Fund (CDRLF), and other organizations to enhance and 
expand services to the low-income population. 

Page 20 of the Report accurately describes the other unique 
characteristics of LICUs and correctly notes LICUs grew in number 
between 2000 and 2005, from 632 to 1,032, a 63 percent increase. This 
result was achieved with NCUA's vigorous encouragement and evidences 
dramatic success in NCUA's effort to increase service to low-income 
members. Although NCUA has not collected income and service usage data, 
the descriptive analyses conducted by NCUA on the data collected in 
MSAP reflect LICUs and FCUs with underserved areas are serving a 
relatively greater proportion of low-and moderate-income individuals 
than the FCU system as a whole. 

A more comprehensive analysis of the reasons that underlie NCUA's 
recent policy change concerning expansion into underserved areas is 
warranted. The American Bankers Association sued NCUA, challenging the 
decision to allow a community based FCU to expand its service into an 
underserved area. The fundamental issue in the case was the authority 
of NCUA to authorize any FCU, regardless of charter type, to expand 
into underserved areas. The Report should explain that settlement of 
the lawsuit resulted in the prohibition of single-bond and community 
FCUs from adopting underserved areas. This prohibition, which is 
contrary to congressional intent, inhibits the ability of both types of 
FCUs to increase service to low-and moderate-income individuals who are 
outside the credit union's FOM. 

In addition, the Report on page 22 uses Washington, D.C. as an example 
of an underserved area approved by NCUA without regard to location. 
This presentation is misleading. It is not explained that once an FCU 
identifies an area meeting the underserved requirement, as defined in 
Section 103(16 of the Community Development Banking and Financial 
Institutions Act of 1994[Footnote 76], it must apply to NCUA to add the 
area to its field of membership. A detailed marketing plan, emphasizing 
how the FCU plans to reach out and serve all individuals in the 
underserved area, must be submitted. A detailed business plan must also 
be submitted indicating how the FCU will meet the needs of the 
individuals in the underserved area by describing the products (e.g., 
free checking, micro-credit loans) and services (e.g., bilingual staff, 
financial education seminars) the credit union offers or is planning to 
offer. Once approved to serve a specific underserved area, the credit 
union must maintain or open an office or service facility in the 
underserved area within two years. 

Other outreach initiatives by NCUA to increase service to underserved 
individuals have not been sufficiently acknowledged or described. NCUA 
has initiated several programs focused on assisting LICUs and on 
providing all credit unions with best practices to consider when 
converting to community charters or adding underserved areas. Since 
1987, NCUA has administered the CDRLF, which was established by 
Congress, to provide technical assistance grants and low-cost loans for 
any LICU interested in enhancing service to its membership. Under 
NCUA's auspices, the CDRLF has granted 273 loans totaling $40.5 
million, and 1,923 grants totaling $5.8 million. 

In addition to the CDRLF, the Access Across America initiative, 
announced in February of 2002, incorporated NCUA's activities for small 
and low-income designated credit unions, as well as those FCUs adopting 
underserved areas. The program was designed to partner with federal 
government agencies and other organizations to identify and facilitate 
use of resources available for credit unions to assist in their efforts 
to serve low-and moderate-income individuals. Workshops continue to 
provide partnering opportunities with federal government agencies, as 
well as non-profit and private organizations. This initiative has 
resulted in NCUA entering into Memoranda of Agreement with the Internal 
Revenue Service, Operation Hope, and the Department of Agriculture, 
each of which committed to provide assistance in sharing opportunities 
with participating credit unions. Moreover, NCUA maintains a working 
relationship with the Department of Health and Human Services, CDFI, 
and Fannie Mae to provide opportunities for credit unions to expand the 
products and services particularly useful to those members with low-and 
moderate-incomes. 

As an adjunct to the Access Across America initiative, the Partnering 
and Leadership Successes program was introduced in 2003 to provide best 
practices in serving members and marketing to potential members in all 
credit unions, especially in underserved areas and communities. The 
agency coordinates widely attended workshops where a mix of credit 
unions present programs focused on serving low-and moderate-income 
individuals. A few of these programs include partnering opportunities 
with the Neighborhood Reinvestment Corporation, Latino outreach, and 
micro-business lending opportunities with the Small Business 
Administration. 

In conjunction with these workshops, numerous Letters to Credit Unions 
have been published that augment the workshops, providing information 
to the credit union system about opportunities available to enhance 
service and marketing to individuals in underserved areas.[Footnote 77] 
Two early examples of these letters include the February 2002 Letter to 
Federal Credit Unions, Letter No. 02-FCU-02 titled Partnership 
Opportunities with IRS, which introduced the credit union system to the 
Volunteer Income Tax Assistance program, and the September 2001 Letter 
to Federal Credit Unions, Letter No. 01-FCU-06 titled Financial 
Education Curriculum, which announced FDIC's new Money Smart Financial 
Education Curriculum. 

The overall objective of NCUA's initiatives is to provide increased 
opportunities for FCUs to diversify their membership profile and to 
assist small and low-income designated credit unions as they manage 
their operations in compliance with the increasing number of complex 
laws and regulations. If successful, the viability of some low-income 
designated FCUs will be preserved, thus further enhancing the 
opportunity for low-and moderate-income individuals in their FOM to 
join and participate in the financial services offered by small and low-
income designated FCUs. 

Each of these initiatives was in direct response to CUMAA. But these 
types of initiatives have long been a part of NCUA's, or its 
predecessor agency's, regulatory fabric. There have been others, such 
as the 1960s era initiative, undertaken jointly with the Office of 
Economic Opportunity, to establish FCUs to serve low-income 
communities, the drive to increase the number of LICUs, and the 
regulatory encouragement to add underserved areas. 

More recently, in 1993, NCUA created the Office of Community 
Development Credit Unions which is dedicated to ensuring the long-term 
viability of small and low-income designated credit unions. Today this 
activity is handled by the Office of Small Credit Union Initiatives 
(OSCUI), which has expanded considerably in terms of staff, resources, 
and programs. 

OSCUI conducts regional and national training workshops on a variety of 
topics to help small and low-income designated credit unions succeed. 
For example, in 2006 to date, OSCUI has held fifteen national workshops 
covering subjects such as establishing financial literacy programs, 
disaster recovery planning, and compliance with the Bank Secrecy Act. 
In addition to the national workshops, OSCUI coordinates with NCUA's 
regional offices to conduct smaller roundtable training sessions 
focused on the needs of small and low-income designated credit union 
officials. 

6. Transparency of Executive Compensation: 

NCUA agrees with the conclusion that credit union executive 
compensation is not readily transparent. Absent compensation 
information captured by IRS Form 990, it can be difficult for FCU 
members to ascertain the exact compensation and benefits received by 
their executives. In the past, NCUA, while not objecting to disclosure 
of this information, has deferred to applicable state law on whether 
compensation and benefit information should be disclosed. 

As the Report points out, staff have indicated more efficient methods 
to capture and disseminate executive compensation information in lieu 
of filing Form 990. Such methods include: (1) amending NCUA's 
regulations to require FCUs to include executive compensation 
information in their annual reports; (2) requiring the reporting of 
such information in NCUA's quarterly call reports; or (3) amending the 
standard FCU Bylaws to require disclosure of compensation information 
during an FCU's annual membership meeting. These and other methods may 
be considered by the NCUA Board in evaluating the transparency of 
executive compensation. 

While NCUA agrees FCU executive compensation is not readily 
transparent, several matters in the Report warrant clarification. They 
include: 

1. Despite the absence of a standardized reporting mechanism, NCUA does 
not ignore the issue of executive compensation. Contrary to the 
implication on page 45, NCUA does assess executive compensation during 
the examination process primarily to determine its reasonableness as it 
relates to safety and soundness. There has never been a system-wide 
issue relating to executive compensation. As such, NCUA has not 
considered it necessary to collect or aggregate executive compensation 
data. 

2. On Page 42, it is implied that MSAP is deficient because it does not 
collect executive compensation information for banks, thereby 
preventing a direct comparison between FCUs and banks. However, it is 
not within NCUA's authority to collect data from banks or thrifts. 
Additionally, since this is not a safety and soundness issue for the 
credit union system, NCUA's authority to collect executive compensation 
extends only to FCUs. 

3. Comparing executive compensation of FCUs and banks was not a stated 
objective for GAO's study. Attempting to make a direct comparison is 
not only irrelevant to the issue of transparency, but is impossible 
given the differences in the forms of compensation available to FCU 
versus bank executives. For example, as the Report notes, stock options 
and stock bonuses are routinely paid to bank executives, but are 
unavailable to credit union executives. Nevertheless, the discussion of 
this matter seems to imply that somehow credit union executive 
compensation may be askew. Only by delving into the data provided in 
Appendix IV of the Report is it clear that credit union executives on 
average make significantly less than their banking counterparts. 

4. Since the Report addressed comparisons between senior officers of 
credit unions and banks, it should have also included a more detailed 
comparison between directors of credit unions and banks. It neither 
discusses nor includes any data regarding the compensation paid to 
directors of banks, which in some instances can be rather lucrative. At 
least some discussion would have been appropriate, especially since FCU 
boards are comprised of volunteers.[Footnote 78] Including such data 
and discussion would have made for a more thorough and accurate 
comparison of executive compensation. 

5. The Report states on page 48 that MSAP will not stratify executive 
compensation by asset size of credit unions. This is not accurate. MSAP 
compensation data can be stratified into two statistically valid 
subsets based on asset size of the credit unions surveyed. In addition, 
limited descriptive conclusions can be derived from the data about 
other asset subgroups. 

7. Conclusion: 

As referenced in MSAP and this response, NCUA recognizes the difficulty 
in addressing the issues of membership profiles and the transparency of 
executive compensation in the absence of comprehensive data. NCUA also 
understands that the time allotted for completion of the Report did not 
allow for consideration of the MSAP data and similar data being 
compiled by NASCUS. Although the Report includes significant new detail 
and qualifies its reliance on the SCF, NCUA anticipates the general 
conclusions reached will be reported without the appropriate 
qualifiers. In order to assure a complete and thorough understanding of 
the FCU system, NCUA suggests that GAO include in its Report the 
information and data contained in MSAP. It is also suggested that the 
completeness of the Report would be further enhanced by inclusion of 
the data now being collected by NASCUS, thus allowing for a thorough 
assessment of the entire credit union system. 

The following are GAO's comments on the National Credit Union 
Administration's letter dated November 14, 2006. 

GAO Comments: 

1. As noted in NCUA's letter, we did not receive the results of its 
pilot survey on the membership profile of federal credit unions (Member 
Service Assessment Pilot Program) in time to include it as part of our 
study. The report can be found at NCUA's website www.ncua.gov. 

2. NCUA questioned GAO's use of low-and moderate-income as a proxy for 
the term modest means. As we note in our 2003 and current report, 
neither the legislative history of the Federal Credit Union Act, as 
amended, nor NCUA have established definitions as to what constitutes 
modest means. As a result, we used the low-and moderate-income 
categories that we defined in our 2003 report, which are based on what 
the other federal financial regulators use for Community Reinvestment 
Act purposes, as a proxy for modest means. Moreover, both citations 
identified by NCUA in the House and Senate reports for the bill that 
ultimately was enacted as CUMAA specifically identify low-and moderate- 
income as components of what is referred to as modest means. We agree 
that the term modest means also indicates a meaning broader than 
individuals with low-and moderate-income. Further, our analysis 
included comparisons between credit unions and banks of households with 
middle-or upper-incomes. This analysis showed that between 2001 and 
2004 credit unions continued to serve a higher proportion of middle-and 
upper-income households and a smaller proportion of low-and moderate- 
income households than did banks. 

3. NCUA stated that the text in footnote 27 of the draft report did not 
accurately reflect the income categories that the federal financial 
regulators established for CRA examinations. The text in question has 
been moved up into the body of the report and modified to more clearly 
state that our categories were based on, but not identical to, that 
used by the other federal financial regulators for CRA purposes. The 
primary difference between our income categories and those used for CRA 
purposes was the use of national median income rather than local 
metropolitan statistical area median income as a benchmark for the 
various income categories. We use the national measure since the SCF is 
a national survey. Further, we agree with NCUA's assertion that 
occupational and associational based credit unions have restricted 
membership bases, which limit their ability to serve all income 
categories. However, as we note in the report, although the number of 
credit unions with single or multiple common bonds have been decreasing 
since 2000 and the number of credit unions with more inclusive 
community charters have been increasing, 2001 and 2004 SCF data 
indicated that credit unions continue to serve a higher proportion of 
middle-and upper-income households than banks. 

4. NCUA questioned our use of SCF data as the primary source for 
conclusions reached in the report regarding the income characteristics 
of credit union members. We believe that the report as stated clearly 
outlines the limitations of SCF data in conducting the analysis, but as 
we noted in our prior report, the SCF is the only source of 
comprehensive data to conduct such an analysis. We agree that there are 
other ways of analyzing and presenting these data. However, we believe 
that figure 2 in our report provides a valid comparison of bank and 
credit union customers in the SCF data. In addition, it uses the 
methodology of our 2003 report, which allows us to directly compare the 
results of our 2003 report with our current report. We focus on the 
median income, as we did in our prior report, since this measure is 
less susceptible to the influence of extreme values than the mean. As 
noted in the report, we performed an additional analysis using the 
median family income to provide additional context to our analysis 
within the same methodological framework. 

5. NCUA suggested that our report does not provide a framework for 
understanding the effect of statutory limitations on federal credit 
unions when comparing the income distribution of federal credit union 
members and bank customers. We explicitly acknowledged the importance 
of these limitations in our 2003 report and have added some additional 
text to reflect these limitations in our current report. Nevertheless, 
we believe that our analysis of SCF data on the income levels of credit 
union members versus bank customers provides important contextual 
information on the extent, if any, that credit union members are 
different from individuals that use banks. The lack of data on the 
income distribution of credit union members by charter type was one of 
the primary factors behind our recommendation that NCUA expand its 
pilot survey to allow the agency to systematically obtain and monitor 
credit union member income data by charter type. 

6. NCUA stated that the report does not thoroughly address the 
proportion of federal credit unions that are community chartered. We 
believe our report addresses this issue correctly, as originally 
presented. Both in table 1 of our report and the related text, we note 
that despite the growth in community charters, multiple-bond credit 
unions remain the largest group of federally chartered credit unions in 
number, total membership, and assets. However, as we noted in our 
report, it is important to emphasize that community-chartered credit 
unions overtook multiple-bond credit unions as the largest of the three 
federal charter types, in terms of average membership and average size 
in terms of assets, beginning in 2003. 

7. NCUA stated that the report does not thoroughly address the agency's 
position on the need for charter conversions to ensure continued 
viability. We believe our report addresses this issue correctly, as 
originally presented. As noted in our report, we attributed to NCUA 
some of the causes for growth in the community charter, including the 
agency's belief that community charter expansion allows federal credit 
unions to attract a more diverse membership base that can enhance a 
credit union's economic viability or safety and soundness as well as 
provide greater opportunities to serve members of modest means. We 
further note in our report that NCUA explained that single-and multiple-
bond credit unions often tend to be organized around employer or 
occupationally based associations, which in turn creates greater 
economic risk exposure since the membership base is intertwined with 
the economic cycles of a particular employer or occupation. Finally, we 
cite a Federal Reserve Bank of Atlanta research paper, which concluded 
that there are material benefits of credit union membership 
diversification and that these benefits derive from expanded investment 
opportunities and reduced concentration risk. 

8. NCUA stated that the time necessary to successfully implement a 
different business model when converting to a community charter is not 
adequately addressed. We believe our report addresses this issue 
correctly, as originally presented. Specifically, the report cites 
NCUA's belief that it would take time for any results to appear in the 
SCF data as credit unions seeking to expand into new areas and reaching 
new types of customers would face a learning curve in their efforts. 
Our report further notes that the latest available data from SCF are 2- 
years old, so any more recent changes would not be reflected in our 
analysis. 

9. NCUA stated that the intent of NCUA's regulations pertaining to 
community charters was not accurately described. Specifically, NCUA 
stated that introductory text in the draft report suggested that the 
affinity requirements of NCUA's field of membership rules and the 
geographic limits on community charters are recent developments. NCUA 
noted that both of these regulatory policies predated CUMAA. We have 
clarified the text of our report to reduce the potential for confusion 
by stating that since the passage of CUMAA, NCUA has approved 
progressively larger geographic-based fields of membership. 

10. Text has been added to reflect the average and median population 
size of community charter conversions approved from 2000 to 2005. 

11. NCUA stated that we inaccurately attributed its change in 
chartering policy as being triggered partly by concerns about competing 
with states having more expansive credit union chartering rules. As we 
reported in 2003, NCUA stated to us at that time that a major reason 
for its regulatory changes was to maintain the competitiveness of the 
federal charter in a dual (federal and state) chartering system. In 
subsequent discussions with NCUA they indicated that it would be more 
accurate to attribute changes in chartering policy to factors such as 
the continued viability of federal credit unions in changing economic 
and financial industry developments. We have modified the text of our 
report to reflect the influence of these factors. 

12. Text has been added to reflect that credit unions historically have 
had the ability to offer real estate and business loans. 

13. Text has been added to the report to recognize that interest rates 
during the period of our credit union and bank rate analysis were at 
historic lows. 

14. Text has been added to the background section of the report based 
on the information provided by NCUA in its comment letter regarding the 
proportion size of the credit union industry in comparison with other 
federally insured depository institutions and the relatively small size 
of most federally chartered credit unions. However, it is important to 
note that the disparity in size between the credit union and banking 
industries does not affect our rate analysis methodology or our 
conclusions since that analysis is broken out by asset groupings, 
starting with institutions with assets of $100 million or less. 

15. NCUA stated that it was inaccurate and inappropriate to use its Low-
Income Credit Union program and underserved area expansion program to 
define and assess service to people of modest means. As noted 
previously, we used low-and moderate-income as a proxy for modest means 
due to a lack of a legislative or regulatory definition or other 
criteria. Moreover, we note that NCUA's regulations for its underserved 
program includes criteria (area in a metropolitan area where the median 
family income is at or below 80 percent of the metropolitan area median 
family income or the national metropolitan area median family income) 
that is roughly similar to that used to define low-and moderate-income 
for CRA purposes (less than 80 percent of the median family income for 
the Metropolitan Statistical Area). 

16. We clarified in the report that both single-bond and community 
credit unions are currently not permitted to include underserved areas 
in their fields of membership. As noted in the report, the American 
Bankers Association contended that the Federal Credit Union Act allows 
multiple-bond credit unions, but it does not specifically identify 
single or community credit unions to add underserved areas to their 
field of membership. 

17. We added additional information in the report on NCUA's criteria 
for federal credit unions applying to include underserved areas in the 
credit union's field of membership. However, we disagree with NCUA's 
assertion that the example we provided in our report is misleading. 

18. We clarified in the report that NCUA examiners assess executive 
compensation during the examination process primarily to determine its 
reasonableness as it relates to safety and soundness, but that since it 
has not found a systemwide issue with executive compensation, NCUA has 
not considered it necessary to collect or aggregate executive 
compensation data. 

19. NCUA noted that our characterization of NCUA's Member Service 
Assessment Pilot implies that the pilot is deficient because it does 
not collect executive compensation information for banks; 
thereby, preventing a direct comparison between federal credit unions 
and banks. It also noted that it is not within NCUA's authority to 
collect data from banks or thrifts and that its authority to collect 
executive compensation data extends only to federal credit unions in 
the context of credit union safety and soundness issues. We do not 
intend to imply that collecting compensation data from banks is the 
responsibility of NCUA but point out the lack of available data that 
would allow a direct comparison of credit union and bank executive 
compensation. 

20. NCUA indicated that comparing executive compensation of federal 
credit unions and banks was not a stated objective for our study and 
that attempting to make a direct comparison is impossible, given the 
differences in the forms of compensation available to federal credit 
unions versus bank executives. We acknowledge that comparing executive 
compensation of federal credit unions and banks was not a stated 
objective for this study. Our report text merely points out that due to 
the lack of consistent, available, and transparent compensation data 
for credit unions, any overall comparison is difficult. For this 
reason, we did not provide bank executive compensation data in the main 
body of the report or make any direct comparisons between credit union 
and bank executive compensation. However, we believe that inclusion of 
bank executive compensation data in the appendix provides a useful 
benchmark on selected executive positions. 

21. NCUA noted that the report neither discusses nor includes any data 
regarding the compensation paid to directors of banks and that 
including such data and discussion would make a more thorough and 
accurate comparison of executive compensation. We acknowledge this 
point and added some additional discussion on bank director 
compensation for context. 

22. Our original characterization of NCUA's Member Service Assessment 
Pilot was based on a discussion with NCUA officials. We have revised 
the text of the report to reflect that compensation data that NCUA 
obtained can be stratified into two statistically valid subsets based 
on the asset size of the credit unions surveyed. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Yvonne D. Jones, (202) 512-8678 or jonesy@gao.gov: 

Staff Acknowledgments: 

In addition to the above contact, Harry Medina, Assistant Director; 
Janet Fong; May Lee; John Lord; Donald Marples; Edward Nannenhorn; 
Jasminee Persaud; Carl Ramirez; Barbara Roesmann; Paul Thompson; and 
Richard Vagnoni made key contributions to this report. 

(250275): 

FOOTNOTES 

[1] According to NCUA, there are fewer than 500 nonfederally insured 
(privately insured or uninsured) state-chartered credit unions. 
Nonfederally insured credit unions are not subject to NCUA regulation. 
This report focuses strictly on federally and state-chartered credit 
unions that have member deposits insured by the National Credit Union 
Share Insurance Fund. 

[2] 12 U.S.C. § 1759 (2000). State credit union chartering acts 
typically include similar field of membership restrictions. For 
example, see Tex. Fin. Code Ann. 122.051 (Vernon 2005). 

[3] The Credit Union Membership Access Act of 1998, Public Law 105-219 
(Aug. 7, 1998), 112 STAT. 914, amended the Federal Credit Union Act to 
allow multiple-group chartering, subject to limitations that NCUA must 
consider when granting charters, and limited new community charter 
applications to well-defined local communities. 

[4] In a multiple-bond credit union, the original number of members in 
each group must be fewer than 3,000, unless a statutory exception 
applies. 12 U.S.C. § 1759(b), (d). The numerical requirement does not 
apply to persons or organizations within an underserved local 
community, neighborhood, or rural district. 12 U.S.C. § 1759(c)(2). The 
act also contains other exceptions to the numerical requirement, as 
well as a grandfather provision. See 12 U.S.C. §§ 1759(d)(2), (c)(1). 

[5] NASCUS Profile Credit Union Supervisory and State Regulatory 
Structures, 2005-2006 Edition. NASCUS represents the 48 state 
governmental agencies and U.S. territorial agencies that charter, 
regulate, and examine the nation's state-chartered credit unions. 

[6] On November 3, 2005, the House Ways and Means Committee held a 
hearing to review the credit union tax exemption in which GAO discussed 
issues regarding the tax-exempt status of credit unions. See GAO, 
Financial Institutions: Issues Regarding the Tax-Exempt Status of 
Credit Unions, GAO-06-220T (Washington, D.C.: Nov. 3, 2005). 

[7] Federally insured credit unions are required to report their 
potential as well as actual membership to NCUA. Potential membership is 
an estimate of the maximum number of members that could join a credit 
union. Throughout this report, the term membership refers to actual 
credit union members unless otherwise noted. 

[8] As discussed previously, CUMAA permits federal multiple-bond credit 
unions to include underserved areas in their field of membership, 
regardless of size and location. 

[9] SEC Final Rule, 17 C.F.R. Parts 228, 229, 232, 239, 240, 245, 249 
and 274, Release Nos. 33-8732; 34-54302; IC-27444; File No. S7-03-06. 

[10] As previously noted in the introductory paragraphs of this report, 
federally and most state-chartered credit unions are also exempt from 
state income and franchise taxes and pay other taxes at the federal and 
state levels. 

[11] 12 U.S.C. § 1768. 

[12] 26 U.S.C. § 501(c)(14)(A). 

[13] 26 U.S.C. § 511(a)(2); see also 26 U.S.C. § 501(c)(1), which, in 
combination with the exemption for federal credit unions under the 
Federal Credit Union Act, excludes them from UBIT. 

[14] See also T.D. 3179, which amended Art. 515(3), section 231, Regs. 
45, Revenue Act of 1918 to read: 

"Cooperative banks without capital stock organized and operated for 
mutual purposes and without profit are exempt. Credit unions, such as 
those organized under the laws of Massachusetts, being in substance and 
in fact the same as cooperative banks, are likewise exempt from tax." 

[15] Pub. L. No. 82-183 § 313. 

[16] S. Rep. No. 82-781 (1951) at 22, 25. 

[17] National Credit Union Administration v. First National Bank & 
Trust Company 522 U.S. 479 (1998). 

[18] Pub. L. No. 105-219 § 101(b)(3); see 12 U.S.C. § 1759 (1994). 

[19] According to NCUA officials, the 9.6 million potential membership 
figure for this credit union was based on the 2001 Census Bureau 
estimate of the population of Los Angeles County. Potentially, the 
credit union's membership could be larger than the population of Los 
Angeles County since individuals who live outside the county but 
worship or work in the county would be eligible to join the credit 
union. 

[20] See GAO, Credit Unions: Financial Condition Has Improved, but 
Opportunities Exist to Enhance Oversight and Share Insurance 
Management, GAO-04-91 (Washington, D.C.: Oct. 27, 2003). 

[21] For example, a Federal Reserve Bank of Atlanta research paper 
concluded that "there are material benefits of credit union membership 
diversification and that these benefits derive from expanded investment 
opportunities and reduced concentration risk." See W. Scott Frame, 
Gordon V. Karels, and Christine McClatchey, "The Effect of the Common 
Bond and Membership Expansion on Credit Union Risk," Federal Reserve 
Bank Atlanta Working Paper No. 2001-10, April 2001. 

[22] Pub. L. No. 105-219 § 2(4). 

[23] Section 701.34 of NCUA's Rules and Regulations defines the term 
"low-income members" as those members who make less than 80 percent of 
the average for all wage earners as established by the Bureau of Labor 
Statistics or whose annual household income falls at or below 80 
percent of the median household income for the nation as established by 
the Census Bureau. 

[24] A "secondary capital instrument" is either unsecured debt or debt 
that has a lower priority than that of another debt on the same asset. 
These subordinated debt instruments are not backed or guaranteed by the 
federal share insurance funds. 

[25] Section 103(16) of the 1994 act defines "investment area" as 
follows: "The term 'investment area' means a geographic area (or areas) 
including an Indian reservation that--(A) (i) meets objective criteria 
of economic distress developed by the Fund, which may include the 
percentage of low-income families or the extent of poverty, the rate of 
unemployment or underemployment, rural population outmigration, lag in 
population growth, and extent of blight and disinvestment; and (ii) has 
significant unmet needs for loans or equity investments; or (B) 
encompasses or is located in an empowerment zone or enterprise 
community designated under section 1391 of title 26." 12 U.S.C. § 
4702(16). 

[26] According to NCUA's Chartering and Field of Membership Manual, a 
federal credit union that desires to include an underserved community 
in its field of membership must first develop a business plan 
specifying how it will serve the community. At a minimum, the business 
plan, must identify the credit and depository needs of the community 
and detail how the credit union plans to serve those needs. The credit 
union will be expected to regularly review the business plan to 
determine if the community is being adequately served. The regional 
director may require periodic service status reports from a credit 
union about the underserved area to ensure that the needs of the 
community are being met as well as requiring such reports before NCUA 
allows a federal credit union to add an additional underserved area. 

[27] 12 U.S.C. § 1759(c)(2). 

[28] 71 Fed. Reg. 36667 (Jun. 28, 2006). 

[29] The SCF is conducted every 3 years and is intended to provide 
detailed information on the balance sheet, pension, income, and other 
demographic characteristics of U.S. households and their use of 
financial institutions. We used the term "household" rather than 
"family," since the reporting unit of SCF more closely resembles the 
Census Bureau's definition of "household" than its definition of 
"family." It should be noted that SCF was not specifically designed to 
conduct comparative analyses of income levels of bank and credit union 
customers; however, SCF provides the best data currently available to 
undertake such a comparison. See appendix II for more information on 
our methodology and analysis of the SCF. 

[30] GAO, Credit Unions: Financial Condition Has Improved, but 
Opportunities Exist to Enhance Oversight and Share Insurance 
Management, GAO-04-91 (Washington, D.C.: Oct. 27, 2003). The analysis 
presented in this section employs the same methodology as in our 2003 
report. 

[31] We based our methodology for determining these classifications on 
work that Jinkook Lee, a professor and researcher at Ohio State 
University, performed. See Jinkook Lee and William A. Kelly Jr., "Who 
Uses Credit Unions?" (Prepared for the Filene Research Institute and 
the Center for Credit Union Research, 1999, 2001). Individuals who 
"primarily" used credit unions placed more than 50 percent of their 
assets in credit unions and those who "primarily" used banks placed 
more than 50 percent of their assets in banks. The term "use" refers to 
a household's placement of assets in a checking, savings, or money 
market account. 

[32] As in our 2003 report, we were unable to find a definition of 
"modest means." Thus, we used the group consisting of low-and moderate- 
income households as a proxy for the purposes of our analysis. 

[33] See appendix II for greater detail on the SCF analyses we 
performed. In SCF, a household unit is divided into a ''primary 
economic unit'' (PEU) and everyone else in the household unit. The PEU 
is intended to be the economically dominant single individual or couple 
(whether married or living together as partners) and all other persons 
in the household unit who are financially interdependent with that 
economically dominant person or couple. The Census Bureau's definition 
of "family" excludes the possibility of one-person household units, but 
its definition of "household" allows for them. 

[34] GAO-04-91, p. 83. 

[35] The Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. 
Chapter 35) was intended, among other things, to minimize the paperwork 
burden for nonprofit institutions that results from the collection of 
information by or for the federal government. 

[36] To determine executive compensation for state-chartered credit 
unions, NASCUS is requesting information from credit unions in the 
states that file a consolidated IRS Form 990. State-chartered credit 
unions are required to file this form, which includes executive 
compensation information. 

[37] A credit union service organization is a corporation, a limited 
liability corporation, or limited partnership owned by one or more 
credit unions that provides services such as insurance, securities, or 
real estate brokerage, primarily to credit unions or members of 
affiliated credit unions. 

[38] We engaged Datatrac Corporation--a market research and information 
technology company specializing in the financial services industry--to 
gather and analyze data on loan and savings products that thousands of 
credit unions and banks offered from 2000 through 2005. Datatrac 
calculated average rates for each of the products for all institutions 
(divided into five distinct asset classes) over this period. See 
appendix III for more information on our rate analysis methodology and 
results. 

[39] See 26 U.S.C. §§ 501, 511; 12 U.S.C. § 1768. 

[40] Statement of Steven T. Miller, Commissioner, Tax-Exempt and 
Government Entities Division, Internal Revenue Service, in testimony 
before the full committee of the House Committee on Ways and Means 
(Nov. 3, 2005). 

[41] Statement of Steven T. Miller. 

[42] Technical Advise Memorandum 9548001 (Mar. 23, 1995). 

[43] See G.C.M. 34612, Exempt Status of State Chartered Credit Unions 
(Sept. 14, 1971); see also G.C.M. 37467 Exemption from Tax On 
Corporations - Credit Unions (Mar. 21, 1978), G.C.M. 38348. 

[44] Technical Advice Memoranda are issued in response to technical or 
procedural question that develop during proceedings on the 
interpretation and proper application of tax law, tax treaties, 
regulations, revenue rulings, notices, or other precedents published by 
the Office of Chief Counsel. Proceedings include the examination of a 
taxpayer's return. 

[45] IRS requires that every year, each local organization (in this 
case, credit union) authorize in writing the central organization that 
prepares the group return to include it in the group return and must 
declare, under penalty of perjury, that the information it submits to 
be included in the group return is true and complete. 

[46] NCUA Letters 06-0127B (Feb. 6, 2006); 96-0541 (Jun. 14, 1996); and 
89-0525 (Jun. 8, 1989). 

[47] 12 U.S.C. §§1761(c) and 1761a. 

[48] GAO-04-91, p. 42. 

[49] According to its Web site, FFIEC is a formal interagency body 
empowered to prescribe uniform principles, standards, and report forms 
for the federal examination of financial institutions by the Federal 
Reserve, the Federal Deposit Insurance Corporation, NCUA, the Office of 
the Comptroller of the Currency, and the Office of Thrift Supervision 
and to make recommendations to promote uniformity in the supervision of 
financial institutions. 

[50] Letter from Richard S. Schulman, NCUA Associate General Counsel, 
Re: Aberdeen Proving Ground Federal Credit Union, NCUA 96-0541 (Jun. 
14, 1996). 

[51] Credit Union National Association, 2005-2006 Complete Credit Union 
Staff Salary Survey and America's Community Bankers, 2005 32ND Annual 
Compensation Survey. 

[52] See NCUA, Member Service Assessment Pilot Program, A Study of 
Federal Credit Union Service (Washington, D.C.: Nov. 3, 2006), 
available at www.ncua.gov. 

[53] We use the term, "household," rather than "family," since the 
subject group of the SCF more closely resembles the U.S. Census 
Bureau's definition of "household" than its definition of "family." 

[54] Our analysis was based on an approach developed by Jinkook Lee of 
Ohio State University. See Jinkook Lee and William A. Kelly Jr., "Who 
Uses Credit Unions?" (Prepared for the Filene Research Institute and 
the Center for Credit Union Research, 1999, 2001). 

[55] The Community Reinvestment Act is intended to encourage depository 
institutions to help meet the credit needs of the communities in which 
they operate, including low-and moderate-income neighborhoods, 
consistent with safe and sound banking operations. It was enacted by 
the Congress in 1977 (12 U.S.C. 2901). 

[56] Datatrac is a privately held company that specializes in financial 
industry research. Specifically, Datatrac monitors and analyzes rate 
trends on popular deposit and lending products for thousands of 
financial institutions nationwide. Institutions voluntarily provide 
data to Datatrac on a weekly basis for inclusion in the company's 
database. 

[57] See GAO, Credit Unions: Financial Condition Has Improved, but 
Opportunities Exist to Enhance Oversight and Share Insurance 
Management, GAO-04-91 (Washington, D.C.: Oct. 27, 2003). 

[58] We use the term "household" rather than "family" since the 
reporting unit of the SCF more closely resembles the U.S. Census 
Bureau's definition of "household" than its definition of "family." The 
Census Bureau's definition of "family" excludes the possibility of one- 
person household units, but its definition of "household" allows for 
them. See Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, 
"Recent Changes in U.S. Family Finances: Evidence from the 2001 and 
2004 Survey of Consumer Finances," Federal Reserve Bulletin, Mar. 22, 
2006, A3. 

[59] Those who "primarily" used credit unions placed more than 50 
percent of their assets in credit unions, and those who "primarily" 
used banks placed more than 50 percent of their assets in banks. The 
term "use" refers to a household's placement of assets in a checking, 
savings, or money market account. Our methodology for determining these 
classifications was based on work that Jinkook Lee, a professor and 
researcher at Ohio State University, performed. See Jinkook Lee and 
William A. Kelly Jr., "Who Uses Credit Unions?" (Prepared for the 
Filene Research Institute and the Center for Credit Union Research, 
1999, 2001). 

[60] In our analyses of SCF data, we specify banks to include both 
commercial banks and savings and loan institutions. Percentages reflect 
the households using financial institutions as a percentage of all 
financial institution users and exclude those households that did not 
use a financial institution (sometimes referred to as "unbanked"). 

[61] See appendix I for more information. 

[62] Datatrac is a privately held company that specializes in financial 
industry research. Specifically, Datatrac monitors and analyzes rate 
trends on popular deposit and lending products for thousands of 
financial institutions nationwide. 

[63] According to the Credit Union National Association's salary 
survey, as part of the methodology, nearly all affiliated credit unions 
with $100 million or more in assets were sent a survey. Stratified 
random samples of credit unions with $1 million to $100 million in 
assets were also sent the survey. Thus, larger credit unions were given 
a greater chance of being selected for the survey to ensure a high 
degree of accuracy for these credit unions and weighted to adjust for 
the overrepresentation of the larger credit unions. Weighting is a 
standard survey analysis procedure designed to adjust estimates to 
account for different rates of selection within sample strata, which 
ensures that results are not biased by a specific group of credit 
unions. 

[64] The America's Community Bankers survey cautions against comparing 
peer group data among the various asset sizes due to the differences in 
bank types. That is, banks with assets up to $50 million 
disproportionately are mutual institutions, while banks with assets of 
more than $1 billion disproportionately are stock banks. 

[65] Pub. L. No. 105-219,112 Stat. 913 (August 7, 1998). 

[66] H.R. REP. NO. 105-472, at 22 (1998)(emphasis added). 

[67] S. REP. NO. 10.5-193, at 11 (1998)(emphasis added). 

[68] See 12 C.F.R. §§ 228.12(b) and (m)(Federal Reserve), 345.12(b) and 
(m)(FDIC), 25.12(b) and (m)(OCC), and 563e.12(b) and (m)(OTS). 

[69] The number of households primarily using credit unions included in 
the 2004 SCF is only 14 percent of those surveyed. The number of FCU 
member households included in this small number is unknown. See page 63 
of the Report. 

[70] Table compiled by NCUA to illustrate other alternatives for SCF 
data analysis. 

[71] Table compiled by NCUA to illustrate other alternatives for SCF 
data analysis using the median income included in the Report. 

[72] Information obtained from FDIC Statistics on Banking: A 
Statistical Profile of the United States Banking Industry as published 
by FDIC, Division of Insurance and Research, for 2003, 2004, and 2005. 

[73] Information obtained from Yearend Statistics for FICUs as 
published by the National Credit Union Administration for 2003, 2004, 
and 2005. 

[74] 115 Cong. Rec. S13997 (May 27, 1969) (statement of Sen. Scott). 

[75] 12 C.F.R. § 701.34(a)(2). As originally implemented, NCUA's rule 
used 70 percent of median as the relevant percentage indicator of "low 
income." The rule was changed to its current usage of 80 percent in 
1993. 

[76]Pub. L. 103-325,108 Stat. 2163 (Sept. 23, 1994)(codified at 12 
U.S.C. §§4701 et seg.) 

[77] NCUA Home Page -http://www.ncua.gov -Letters to Credit Unions, 
2001 to 2005. 

[78] Pursuant to the FCU Act, no member of an FCU board may be 
compensated; however, an FCU may compensate one individual who serves 
as an officer of the board. For example, if the credit union's paid CEO 
is also a member of the board. See 12 U.S.C. §§ 1761 (c) and 1761a. 

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