By Rob Nichols
After truly fizzling out throughout the pandemic, the development of credit score unions shopping for taxpaying neighborhood banks is again—and credit score unions have gotten extra aggressive than ever of their pursuit of acquisition targets. The primary half of 2021 has already seen two precedent-shattering offers: Jacksonville, Florida-based VyStar Credit score Union’s acquisition of a $1.6 billion Georgia financial institution—the most important buy of a financial institution by a credit score union up to now—and extra not too long ago, Iowa-based Inexperienced State Credit score Union’s announcement that it might concurrently purchase not one however two neighborhood banks within the Midwest.
Acquisitions like these are a foul deal for taxpayers, a foul deal for communities and a foul deal for shoppers.
At a basic stage, they erode state and federal tax bases, diverting funds away from vital infrastructure tasks and different authorities initiatives. Maybe much more egregiously, within the case of VyStar—which paid an 80% premium on its acquisition transaction—the agency’s tax-exempt standing signifies that American taxpayers successfully backed the acquisition.
Evaluation by the Authorities Accountability Workplace exhibits that credit score unions at the moment are serving extra middle- and upper-income prospects, fairly than prospects of “small means”—the congressional mandate behind the credit score union tax exemption. Somewhat than specializing in low-to-moderate-income communities that share a typical bond, credit score unions are more and more concentrating on a wealthier consumer base, advertising and marketing wealth administration companies, luxurious items financing and business banking companies. That is merely not what credit score unions have been created to do.
Shoppers additionally lose out when credit score unions gobble up neighborhood banks, provided that credit score unions are usually not held to the identical rigorous regulatory requirements as banks in the case of shopper safety or neighborhood reinvestment.
These offers are additionally dangerous for the credit score union business itself, as small credit score unions are more and more compelled to compete with an increasing cadre of enormous, growth-oriented companies. Regardless of all this, credit score unions proceed to persist of their pursuit of neighborhood financial institution acquisitions, aided and abetted by the Nationwide Credit score Union Administration, which went as far as to aim to formally codify this course of with a proposed rulemaking final 12 months—a step ABA vigorously opposed.
These efforts characterize yet one more assault on the statutory definition of “credit score unions” enshrined within the Federal Credit score Union Act that has been happening for years. It’s even been acknowledged on the highest ranges of NCUA’s personal management—one want look no additional than former NCUA Chairman Mark McWatters’ warning that the company he as soon as led has turn into “inappropriately emboldened” and has allowed the establishments it’s charged with supervising creep far past their statutory boundaries.
It’s time for Congress to step in.
Lawmakers should decide whether or not these kind of acquisitions and the damaging penalties that observe meet align with the general public coverage targets Congress meant when it created the credit score union tax exemption within the first place.
Till they do, the banking business should proceed to push again—because it has in states like Iowa and Colorado, the place state regulators have decided that native statutes don’t enable credit score unions to amass state-chartered banks. ABA will proceed its advocacy in opposition to these kind of mergers—as we did in a current letter to the OCC, highlighting the specific risk they pose to the mutual financial institution enterprise mannequin.
We’ll proceed to make these arguments loudly and infrequently, as a result of we all know that when taxpaying banks are overtaken by tax-exempt credit score unions, everybody loses.