INDIANAPOLIS–The chairman of the Indiana Bankers Association is blasting credit union acquisition of banks in the state, saying the “tax implications are staggering.”
Writing in the Indianapolis Business Journal, Lucas White pointed to the acquisition of Our Community Bank in Spencer, Ind., by Crane Credit Union, noting it is the fifth announcement since August 2019 of a “taxpaying Indiana bank being purchased by a tax-exempt credit union. In fact, more Indiana banks are now selling to credit unions than to other banks.”
As CUToday.info has reported, other acquisitions in Indiana have included Commerce Bank in Evansville, purchased by Indiana Members Credit Union; West End Bank in Richmond, purchased by 3Rivers Federal Credit Union; Community State Bank of Southwestern Indiana in Poseyville, which is to be acquired by Crane Credit Union later this year, and the Elberfeld State Bank in Evansville, which is to be acquired by Heritage FCU.
Tax Revenues ‘Cease Immediately’
“The tax implications are staggering. The Indiana Bankers Association recently compiled data on three of the four previously announced credit union acquisitions, barring one S Corp bank for which no data was available. By a conservative estimate, the three banks involved paid combined federal taxes of $4.9 million in the five years leading up to sale,” wrote Lucas. “This revenue stream ceases permanently upon completion of the transactions, and this loss represents Indiana only. Nationwide, more than 40 credit union acquisitions of taxpaying banks have occurred within the last decade. The U.S. debt now exceeds $26 trillion and will continue to grow monstrously if the trend is not reversed.”
As others in the banking industry critical of credit unions have done, Lucas cited the 1934 Federal Credit Union Act and claimed “Congress created credit unions, the mission was to make credit available to ‘people of modest means,’ generally united by a common bond of occupation or location. For this reason, credit unions were exempted from federal taxes.”
‘Little Resemblance to Their Forbears’
But in the 80-plus years since then, Lucas argued, “credit unions have grown substantially in size and scope, bearing little resemblance to their forebears. Their current clientele often are affluent, and field-of-membership requirements have been stretched beyond recognition. Evansville Teachers Federal Credit Union, for example, boasts on its website: ‘Not a teacher? Not a problem!’”
Lucas said the credit union industry claims to be consumer-focused, “yet credit unions are not subject to the Community Reinvestment Act requirements that banks are. They also have been vastly underrepresented among lenders in helping small businesses apply for Paycheck Protection Program loans, which helped keep businesses afloat throughout the pandemic.”
Lucas further wrote credit unions are able to buy banks in “large part because their federal tax-exemption benefit often allows them to offer the highest bid, which bank directors feel obligated to accept for their shareholders. This outdated federal tax exemption needs to be reviewed by Congress and reformed.”