WASHINGTON–The American Bankers Association has sent a letter to congressional leadership arguing the recent acquisition of a $1.6-billion “taxpaying” bank by VyStar Credit Union is new evidence of a “troubling trend” and a “bad deal for taxpayers,” as well as a growing risk as CU regulatory standards “simply don’t measure up.”
The letter to the House and Senate was sent ahead of oversight hearings of prudential regulators, with the ABA saying it wants to “highlight a significant event that underscores” what it said is a “disturbing trend” in the financial services space. The letter linked to a 2019 story in the Wall Street Journal that was headlined “Credit Unions Go on Bank Buying Spree.”
“The acquisition, made by Vystar Credit Union headquartered in Jacksonville, Florida, is the 43rdsuch deal since 2013. It is also the first time a credit union has acquired a bank with more than $1 billion in assets (Heritage Southeast Bank in Georgia), making it the largest bank acquisition by a credit union in history,” the ABA wrote. “The credit union is paying an 80% premium to do so, which given the industry’s tax exemption issignificantly subsidized by the American taxpayer.”
According to the ABA, the acquisition by VyStar puts in “stark terms” the “nearly $2 trillion (emphasis by ABA) credit union industry,” with the letter further suggesting “several growth-oriented credit unions have become indistinguishable from traditional tax-paying banks -- while continuing to enjoy an exemption from federal and most state income taxes, lighter regulation, and no federal community reinvestment obligations to support the needs of low- and moderate-incomecommunities.”
As CUToday.info has reported, in recent years the ABA and other bank trade groups have begun to state their opposition to credit unions is only to larger CUs.
ABA Lists “Concerns”
Calling on Congress to “address these concerns,” the ABA said those concerns include:
- A bad deal for taxpayers. “These transactions are effectively corporate inversions withoutleaving the country,” the ABA said. “Credit unions are exempt from federal and most state income taxes, and when the deal closes, the base is eroded as a taxpayer permanently falls off the income tax rolls. All subsequent growth is tax-exempt, with the former bank’s services no longer funding the nation’s schools, roads and infrastructure. At a time when state and local government financing is also a major public concern, the increasing frequency of these deals and loss of income-tax revenue also becomes an expanding problem for local communities.”
- A bad deal for communities, especially low-income communities. “Credit unions are exempt from the Community Reinvestment Act, which means that required community engagement obligations are lifted in these transactions. Since credit unions have no responsibilities either to invest in or disclose the degree to which they serve low- and moderate-income segments of their markets, communities lose resources as these acquisitions occur.” The letter cited research done by Federal Financial Analytics, Inc. that said it found “credit unions are actually a contributing factor in increasing economic inequality.” The research was funded by the ABA.
- A bad deal for consumers, including those served by both the bank and the credit union.“Part of the justification for the credit union tax exemption is that they are customer-owned and their profits are supposed to be reinvested for the benefit of existing members in the form of lower rates on loans and higher returns on savings,” the ABA wrote. “This argument no longer remains credible— Vystar’s existing members are seeing credit union resources diverted to pay the acquisition premium for this bank’s assets.
“Moreover, given the credit union industry’s less stringent regulatory requirements, what were previously bank customers now find themselves with fewer consumer and otherprotections when they become credit union customers,” the letter continued. Citing as examples reporting in publications that include American Banker, the ABA argued credit union capital requirements, appraisal standards and consumer protection supervision are “among the areas where credit unions simply don’t measure up to bank regulatory requirements.”
- A bad deal for other credit unions, and the credit union idea. “Small institutions—includingother credit unions—will be forced to compete with these large, tax-exempt credit unions afterthese bank acquisition deals close,” the ABA stated. “That is a big change from the original credit union idea, where limited fields of membership meant credit unions rarely competedwith one another…Many credit unions now have open (or effectively open) membership, and market themselves or their services as banks or banking. Analysis shows they now serve more middle- and upper-income customers instead of those of ‘small means.’ They market wealth-management services and luxury goods financing, and they increasingly offer commercial banking services. These activities are not what credit unions were created to do.”
‘Time for Congress to Engage’
The letter, signed by ABA President Bob Nichols, said “policymakers must engage” and further stated the “VyStar acquisition is symptomatic of a broader concern. Both credit union acquisitions ofbanks and dramatic growth rates by the largest credit unions reduce the tax base that supports local educational, police, fire and infrastructure needs, as well as national needs.
“It is time for Congress to engage and determine whether credit union acquisitions of banks and the negative consequences that follow these transactions meet the public policy goals Congress intended when it created tax-exempt credit unions in the first place,” the letter concludes.
Angry All The Time
In response to the letter, John McKechnie, a senior partner with the Washington advocacy firm Total Spectrum who also previously held positions at both CUNA and NCUA, said, “The bank lobby must be getting tired of writing the same letter, but I guess they feel like it’s what they have to do to keep their membership angry all the time.”