By Ray Birch
DES MOINES, Iowa—An effort is underway in Iowa to markedly slow down and potentially even stop the sale of banks in this state to credit unions, with a hearing on the issue scheduled for today.
A bill in the Iowa Senate, Study Bill 1224, would sharply limit an Iowa bank’s options to sell. The result would be a decrease in options for credit unions as they seek to grow and a decrease in the options available to banks and their owners.
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 law led UICCU to change its name to GreenState Credit Union, while the former University of Northern Iowa CU changed its name to UNITE Credit Union.
If the new legislation affecting bank purchases were to pass, it would affect state-chartered CUs more than federally chartered CUs in Iowa, according to Michael Bell, a partner and co-chair of the Financial Institutions Practice Group at Honigman, LLP.
Michael Bell
‘The Main Arguments’
“The main arguments, as I understand them, involve alleged unfair competition from credit unions, along with the idea that these purchases eliminate small rural banks,” 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.
“This would be a huge disadvantage for Iowa state-chartered credit unions,” he continued. “It materially affects and degrades the dual-chartering system. Moreover, the Iowa state CU charter gets weakened when compared to adjacent state charters and certainly the federal charter. If the goal of the Iowa legislature is to eliminate Iowa state-chartered CUs, this would be a way to achieve that.”
The proposed legislation comes at a time when bankers across the nation have turned up the heat on credit union purchases of banks, with many state and national banking associations calling on Congress to investigate the practice
In Des Moines, the bill is currently being studied by the Iowa Senate Committee on Commerce. Jason Schultz, the committee chair, introduced the bill.
Bell noted there is a long runway for this bill to become law, citing sources who believe the bill could pass out of committee and then be passed by the Iowa Senate. However, the bill will face a tough fight in the House, he said.
Earlier effort by the state’s banks to tax CUs.
Legal Challenges Would Be Expected
“We are a long, long way from this becoming the law of the land in Iowa,” said Bell, who will testify in a hearing before the Senate committee Monday as a financial institutions expert. The Iowa CU League is also expected to testify.
“I plan to address the proposed law directly, and explain how bad it is for both banks and credit unions. On the surface it may seem like a way to punish or limit credit unions but in the end it lowers the value of all Iowa banks and diminishes the Iowa state credit union charter,” said Bell, who added the bill raises significant constitutional questions and issues. “If this makes it all the way to becoming a law, I would absolutely expect legal challenges to be filed.”
Asked by CUToday.info to comment on the threat, PolicyWorks, the legislative arm of the Iowa Credit Union League, did not respond by press time.