ARLINGTON, Va.–In response to statements from the banking industry that a recent credit union acquisition of a billion-dollar bank is indicative of threats to taxpayers and to underserved communities, NAFCU President and CEO Dan Berger sent a letter to congressional leadership saying the American Bankers Association “continues to misrepresent the facts.”
“First and foremost, it is important to recognize that bank-credit union mergers are voluntary,market-based transactions that require a community banks’ board of directors to vote on selling to a credit union,” wrote Berger. “These are not ‘hostile’ takeovers. The bank is the one that ultimately makes the decision to sell to, and merge with, a credit union (emphasis by NAFCU). Perhaps, ABA’s concerns would be better addressed by sending a letter to their members asking why they are choosing credit unions over banks.”
Berger told Congress bank/CU mergers are “typically a win-win” for a local community that may lose its community-focused financial services, and that credit union-community bank mergers often mean employees retain jobs and branches remain open with a focus on the members in the community.
‘$100 Million in Taxes Paid’
“These mergers also cannot occur without approval from both bank and credit union regulators,” Berger wrote. “This is a power that the National Credit Union Administration (NCUA) takes seriouslyas evidenced by their work on rulemaking in this area last year. Furthermore, credit unions thatmerge with a bank retain their credit union characteristics and are still subject to strict statutoryprohibitions and limits on powers as set out in the Federal Credit Union Act, including field of membership requirements for the newly acquired bank customers, limits on business lending, a usury ceiling, and the capital limitations of credit unions.”
Berger said that while the ABA used its letter to attack the tax status of credit unions, the letter did not mention “ these mergers are often purchase and assumption transactions (if the bank is a C-corporation, which is most common) and are subject to taxation at the bank level (unlike bank-to-bank transactions, which are often stock transactions).”
“We estimate that over $100 million in taxes have been paid in the past several years due to thesetransactions,” Berger stated. “Additionally, the credit union actually pays many taxes, such as local property taxes and payroll taxes when the former bank remains open as a credit union. ABA’s ongoing attacks on the credit union tax exemption continue to ring hollow.”
An ‘Irony’ on CRA
Berger also told Congress that while the “the ABA also implies that the growth in the credit union industry means that some credit unions are now no different than banks. They are wrong.” Berger cited NAFCU’s microsite as a source to set the “record straight on how credit unions are different.”
Berger called it “ironic” that the ABA is calling for credit unions to be subject to the CommunityReinvestment Act (CRA) when at the same time they are seeking to lessen the CRA impact on banks.
“They want you to forget that CRA was adopted as a punitive measure to punish specific bad actors– namely banks and thrifts – for engaging in discriminatory practices such as redlining anddisinvestment,” Berger said. “Credit unions were not included under CRA because there has never been any evidence that credit unions have engaged in these illegal and abhorrent activities.”
He also pointed to PPP data that showed the average CU loan in 2020 was $50,000, while at banks the average was more than $100,000.
Failure in Disclosure
“The truth is that while banking trade groups like ABA have called on Congress to change the taxstatus of credit unions, they fail to disclose that the banking industry received tens of billions ofdollars in annual tax breaks from the Tax Cuts and Jobs Act,” said Berger. “They also fail to point outthat nearly one-third of all banks are Subchapter S corporations and do not pay corporate income taxes themselves. These annual tax breaks for banks far outpace the annual tax expenditure of thecredit union tax exemption.
“The real issue is that it is difficult to be a community financial institution today. Regulatory burdens and competition from big banks and unregulated actors entering the financial services space make it hard to survive,” the letter continues. “Many institutions, whether banks or credit unions, need to grow to survive. One avenue for growth is mergers – whether bank-bank, credit union-credit union, or credit union-bank. The fact is that credit union-bank mergers remain a small percentage of overallmergers among financial institutions. There have also been cases where the bank acquires a creditunion and is the surviving institution.”