DENVER–Colorado’s credit unions have lost a battle in the state legislature and will not be permitted to accept deposits from local governments.
Lawmakers said the activity would be “too far outside their existing lane and would give them an unfair competitive advantage over state banks,” according to the Denver Business Journal.
The decision by the House Business Affairs and Labor Committee to reject House Bill 1277 “ended more than a month of raucous behind-the-scenes fighting between Colorado banks and credit unions over credit unions’ taxation and regulation and how those factors should limit their scope of services in terms of financial customers,” the report added.
According to the Business Journal, the final decision cut across party and idealogical lines.
House Bill 1277, sponsored by Democratic Rep. Kyle Mullica of Federal Heights and Republican Rep. Patrick Neville of Castle Rock, would have ended a state prohibition against public entities like city governments and special districts being able to invest their funds with credit unions.
Longtime state law requires such investments be made only with FDIC-insured institutions, even as more local governments in recent years have tried to use credit unions either for specific programs or for their financial institutions of choice, according to the Business Journal.
A Lengthy Hearing
“Credit unions and local-government leaders argued Thursday in a lengthy hearing that cities and counties should have the right to choose the financial institution that is right for them, and that such competition would benefit taxpayers via better interest rates or other offers,” the Business Journal reported.
However, a “litany” of bank officials argued that credit unions, which as nonprofit organizations don’t have to pay income tax, would have an unfair advantage in going after public money, especially as they also don’t have to pledge assets to protect up to 160% of the uninsured deposit beyond the first $250,000 protected by the FDIC, the report added.
“And they argued that diverting public funds away from their institutions, including some rural banks that get as much as 47% of their deposits from local governments, would stunt their ability to offer loans to family farms and local businesses across Colorado,” the Business Journal added.
More Arguments
“Taking money out of banks will result in fewer dollars, fewer loans across Colorado,” Colorado Bankers Association President/CEO Jenifer Wallers told the Business Journal. “Both banks and credit unions have our lane. But when credit unions want to offer the same services as a bank, they should have to operate like a bank.”
The bankers told the legislature the state’s banks had handled 80% of federal Paycheck Protection Program loans during the coronavirus pandemic versus just 16% by credit unions, while credit unions noted that banks have 86% of the market in Colorado as compared to 14% to credit unions.
“The choice is not between banks and credit unions,” Dan Diorio, director of political financing and policy at the Mountain West Credit Union Association,” told the Business Journal. “It’s a choice between eliminating an outdated provision of law or giving local governments the choice in how to serve their constituents.”
The Most Common Argument
According to the Journal, the most common argument against opening public investment to credit unions, however, was that both institutions are structured to fill specific purposes and that this change would blur the distinctions between credit unions and banks while they continued to operate under very different regulations.
Don’t Forget to Check the Spam Folder!
Don’t forget to check your Spam/Junk email folder if you didn’t receive your free, popular and daily CUToday.info news headlines on Monday.
And if you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time.
CUToday.info has received very positive response from readers following the move to an improved provider of the daily headlines, but many also noted they did need to go to their Spam/Junk folder and mark it as safe.
The new email solution has not only improved every reader’s delivery experience, but it also features a fresh, new format that is easy to read, especially on mobile devices.
Please note and/or make your IT department or email administrator aware the emails will be coming from the domains CUTodayinfo.com and CUTodayinfoReply.com.