18 MARCH / APRIL 2020 FEATURE Credit Union Acquisitions Policymakers right to question this trend Federal Deposit Insurance Corp. Chairman Jelena McWilliams recently told Congress that she is concerned that local communities are losing access to banking services due to the growing trend of large credit unions buying smaller community banks. With the growing number of acquisitions and recently the biggest credit union bank buyout yet, McWilliams’ concerns are completely justified and must be further explored by Congress. Unlevel Playing Field Responding to questions from members of the House Financial Services Committee, McWilliams noted that credit unions are fully exempt from federal taxes and the Community Reinvestment Act, which apply to locally based community banks, savings and loans, mutual savings banks, and virtually every other financial institution. Acquiring credit unions are 10 times larger on average than their target community banks, suggesting McWilliams uttered an understatement when she said the “playing field might not be exactly level.” The National Credit Union Administration’s newly proposed rule to implement a regulatory framework for these transactions indicates that policymakers have begun paying attention to this troubling acquisition trend, but it is up to Congress to truly address the problem. Exploiting Taxpayers With tax-exempt credit union bank purchases reaching 21 in 2019 following nine deals announced in 2018, credit unions certainly appear to be putting their $2 billion annual taxpayer subsidy to use. Unfortunately for the people of modest means that credit unions were established by Congress to serve, no one appears to be benefiting more from the tax exemption than credit unions themselves. It’s long overdue for Congress to hold a hearing examining what exactly credit unions are now doing with their multibillion-dollar tax subsidy. Credit unions withhold 21 to 33 cents of every dollar in tax subsidies they receive, according to a research paper developed by the Independent Community Bankers of America. In 2018, that amounted to between $500 million and $900 million in taxpayer dollars not directed toward credit union members. Abandoned Mission Meanwhile, credit unions have significantly deviated from their founding mandate to serve people of modest means. Today, less than 10% of credit unions are physically located in an economically distressed community, and only 13% are in low- and moderate-income areas, according to ICBA research. Low-income individuals are more likely to receive services from a tax-paying community bank in 28 states. In low-income or distressed communities, community banks – which contributed nearly $15 billion in tax revenue in 2018 – outnumber credit unions by a 2-1 margin. While traditional credit unions are declining, larger credit unions account for more of the tax burden. In 2017 credit unions over $1 billion comprised 6% of the industry, but 75% of its tax exemption. And growth-obsessed credit unions are increasingly taking on riskier activities, such as loans for “toys” such as boats, jet skis and recreational vehicles. Rebeca Romero Rainey President and CEO Independent Community Bankers of America @romerorainey
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