By Rob Nichols
After petering out through the pandemic, the development of credit score unions shopping for taxpaying group 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 thus far—and extra lately, Iowa-based Inexperienced State Credit score Union’s announcement that it might concurrently purchase not one however two group banks within the Midwest.
Acquisitions like these are a nasty deal for taxpayers, a nasty deal for communities and a nasty deal for shoppers.
At a elementary degree, they erode state and federal tax bases, diverting funds away from essential 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 are actually serving extra middle- and upper-income prospects, quite than prospects of “small means”—the congressional mandate behind the credit score union tax exemption. Fairly than specializing in low-to-moderate-income communities that share a standard bond, credit score unions are more and more focusing on a wealthier shopper base, advertising wealth administration companies, luxurious items financing and business banking companies. That is merely not what credit score unions have been created to do.
Customers additionally lose out when credit score unions gobble up group banks, on condition that credit score unions are usually not held to the identical rigorous regulatory requirements as banks on the subject of client safety or group reinvestment.
These offers are additionally unhealthy for the credit score union business itself, as small credit score unions are more and more compelled to compete with an increasing cadre of huge, growth-oriented corporations. Regardless of all this, credit score unions proceed to persist of their pursuit of group 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 yr—a step ABA vigorously opposed.
These efforts symbolize 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 a majority of these acquisitions and the detrimental penalties that observe meet align with the general public coverage objectives Congress supposed 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 permit credit score unions to amass state-chartered banks. ABA will proceed its advocacy in opposition to a majority of these mergers—as we did in a latest letter to the OCC, highlighting the specific menace 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.