WASHINGTON–The nation’s banking industry must more aggressively push back against credit union acquisitions of banks, which are not just bad for America but even for credit unions themselves, according to the president of the American Bankers Association.
Writing in the ABA Banking Journal, ABA President Rob Nichols said credit unions have become “more aggressive” than ever in buying banks, citing the acquisition by Jacksonville, Fla.’s VyStar Credit Union of a $1.6-billion Georgia bank and Iowa-based Green State Credit Union’s announcement it will acquire two community banks in the Midwest.
“Acquisitions like these are a bad deal for taxpayers, a bad deal for communities and a bad deal for consumers,” wrote Nichols. “At a fundamental level, they erode state and federal tax bases, diverting funds away from important infrastructure projects and other government initiatives. Perhaps even more egregiously, in the case of VyStar—which paid an 80% premium on its acquisition transaction—the firm’s tax-exempt status means that American taxpayers effectively subsidized the purchase.”
Not Serving People of ‘Small Means’
Nichols said analysis by the Government Accountability Office shows that credit unions are now serving more middle- and upper-income customers, rather than customers of “small means,” which he said is “the congressional mandate behind the credit union tax exemption.”
“Rather than focusing on low-to-moderate-income communities that share a common bond, credit unions are increasingly targeting a wealthier client base, marketing wealth management services, luxury goods financing and commercial banking services,” Nichols suggested. “This is simply not what credit unions were created to do.”
Nichols further suggested consumers also lose out when credit unions “gobble up community banks, given that credit unions are not held to the same rigorous regulatory standards as banks when it comes to consumer protection or community reinvestment.”
‘Bad’ For Credit Unions
“These deals are also bad for the credit union industry itself, as small credit unions are increasingly forced to compete with an expanding cadre of large, growth-oriented firms,” Nichols continued. “Despite all this, credit unions continue to persist in their pursuit of community bank acquisitions, aided and abetted by the National Credit Union Administration, which went so far as to attempt to formally codify this process with a proposed rulemaking last year, a step ABA vigorously opposed.”
Nichols termed the acquisitions of banks by credit unions “yet another assault on the statutory definition of ‘credit unions’ enshrined in the Federal Credit Union Act,” and said former NCUA Chairman Mark McWatters had even warned that the agency he once led has become “inappropriately emboldened” and has allowed the institutions it is charged with supervising creep far beyond their statutory boundaries.
Congress Must Act
Nichols said it’s time for Congress to act.
“Lawmakers must determine whether these types of acquisitions and the negative consequences that follow align with the public policy goals Congress intended when it created the credit union tax exemption in the first place,” stated Nichols. “Until they do, the banking industry must continue to push back—as it has in states like Iowa and Colorado, where state regulators have determined that local statutes do not allow credit unions to acquire state-chartered banks. ABA will continue its advocacy against these types of mergers—as we did in a recent letter to the OCC, highlighting the particular threat they pose to the mutual bank business model.”