DES MOINES—A bill that would prevent Iowa’s state-chartered credit unions from buying banks has passed out of this state’s Senate Committee on Commerce. One analyst told CUToday.info, which was first to report the story here, were it to be enacted it would put the state in a “dark cave” of regulation.
The Iowa CU League has responded to the committee’s vote by saying state Senate bill is unconstitutional, and contending there is likely not enough support statewide for the bill to eventually become law.
Justin Hupfer, VP governmental affairs at the Iowa CU League, told CUToday.info that any time there's a bill that’s restrictive to credit unions’ ability to serve Iowans, the league takes it seriously.
“Ultimately, what the bankers are doing is trying to restrict credit unions as a choice in the marketplace when community banks want to sell,” said Hupfer. “This bill would prohibit state-chartered credit unions from being able to meet with state and national banks that want to sell—the bill essentially says state-chartered credit unions cannot merge in, purchase or acquire a bank. The bill is very overreaching and we believe it's clearly unconstitutional.”
Hupfer said this is just another salvo from bankers in a state that has been very unfriendly to credit unions.
Hostile Environment
Iowa has been among the states with the most hostile environment toward credit unions. The action in the Iowa legislature—which has taken anti-credit union positions in the past—is apparently driven by the Iowa Bankers Association, which has been among the most aggressive banking associations in the country in attacking credit unions, including using television advertising in the state to attack the credit union tax exemption, and in nearly getting a proposed tax on CUs approved in the state.
In addition, in 2019 the legislature forced University of Iowa Community Credit Union, the largest in the state, to change its name, ruling credit unions should not be allowed to use the names of universities in their names. As CUToday.info earlier reported, Regent Larry McKibben, who had been the loudest voice among the Regents saying he was concerned over the credit union’s name, did not disclose he is also part-owner of Farmers Savings Bank in Marshalltown.
The Iowa League testified before the Senate Committee on Commerce Monday, and Hupfer said the league emphasized the bill is anti-free market and that no other state in the country has a law like this.
“Secondly, we talked about the constitutionality of this,” said Hupfer. “We think it's clearly unconstitutional because it restricts banks and credit unions. And then, if you take credit unions off of the table, so to speak, as an option for smaller community banks to sell to, you are just pushing these community banks to be acquired by the regional and national banks. And those regional and national banks are just focused on bottom lines. They’re lacking a conscience about retaining employees in their deals, and for keeping branches open. Credit unions are a much better option for Iowans.”
Forced to Convert?
Hupfer suggested that if the bill were to become law it would likely force many state-chartered CUs to convert to a federal charter.
While there may be “pockets of support” for the legislation, Hupfer said the league does not believe there is broad support statewide.
The bill was first introduced by Republican Jason Schultz, who chairs the Senate Committee on Commerce, as Study Bill 1224.
“Our focus now will be too the work to make sure it never gets brought up on the Senate floor, said Hupfer. “There's not a companion bill in the House, so, right now all the attention is on the Senate.”
Hupfer pointed out the latest legislative session in Iowa is targeted to adjourn near the end of April.
“That gives us about seven weeks left,” stated Hupfer. “The bill would also have to be out of the Senate and passed by the committee of jurisdiction by April 2 for the bill to remain alive. I guess, then, April 2 would be in next marker. Obviously, we hope to stop it from advancing that far.
In a ‘Dark Cave’
If this legislation were to pass, Michael Bell, a partner and co-chair of the Financial Institutions Practice Group at Honigman, LLP, who also testified Monday before the Senate committee as a financial institutions expert, said it would make Iowa a “complete outlier” regarding credit union purchases of banks.
“It would put Iowa in the dark cave of overregulation all by itself,” said Bell, who pioneered credit union purchases of banks and has been involved in more than 38 whole-bank agreements plus additional bank branch purchases.
“I think after testifying before the Iowa Senate subcommittee on Monday, and hearing what this is really about, it’s simply bankers being focused on credit union taxation and just doing whatever they can to create barriers for credit unions or get a pound of flesh from credit unions,” said Bell.
Bell pointed out that bankers’ arguments against that deals have included allegations that credit unions, since they are not taxed, have more money to spend on a bank buy and therefore can overpay, which he said bankers claim places potential bank buyers at a disadvantage.
‘Not Factual’
“That is just not factual,” explained Bell. “Credit unions do not have an advantage that allows them to overpay. I have been involved in 95% of these deals across the country and I have never seen a credit union overpay or win a bid because they don’t pay taxes. What is happening is some sellers prefer 100% cash deals, and that is all a credit union can do—pay in cash. For some reason banks tend to pay with stock and some cash.”