Pub. 9 2021 Issue 2 2 T he B ottom L ine Howard Headlee President and CEO Utah Bankers Association T he debate surrounding the credit union tax subsidy has taken a lot of twists and turns over the past 25 years, but banks scheming with credit unions to divert the credit union tax subsidy into the pockets of bank shareholders is not something I saw coming. In April, Vystar, a $10 billion Florida based credit union acquired $1.5 billion Heritage Southeast Bank located in Georgia by paying an 80% premium to the bank’s shareholders. Vystar could justify paying such a large premium for the bank because the bank becomes much more valuable to Vystar when the bank’s future profits become tax-exempt. For those scratching their heads, here is what this means. The shareholders of Heritage Southeast Bank discovered a way to take the money the bank would have paid in taxes over the next several years, and with the help of the executives at Vystar, they put the money that would have gone to public schools and national defense into their own pockets. In effect, unelected credit union executives have assumed the privilege of appropriating public money and have voted to divert money away from public programs into the pockets of bank owners. This is outrageous, but typical of tax subsidies. Over time, very smart people find ways to exploit tax subsidies in ways that were never intended. Congress made it very clear in the 1934 Credit Union Act that this subsidy was intended to “make more available to people of small means, credit for provident purposes.” This made total sense back then; economic times were tough and poor people were having a hard time getting access to credit. The tax subsidy was intended to help them. But Congress didn’t adequately tie the subsidy to that mission. The efforts of credit unions to serve the poor are not measured in any way. In fact, a recent GAO study revealed that today, banks are doing a better job of serving the poor than credit unions. Just look at the new branches of the largest credit unions and you will find that most are being built in the wealthier parts of town. A century later, with no limits in place, the tax subsidy that was meant to help the poor gain better access to credit is instead being used to line the pockets of bank shareholders. Ironically, current leaders in Congress are still looking for ways to expand financial services to the poor. Just last month, while Congress was holding hearings on how to expand credit to poor and underserved communities, Lake Michigan Credit Union was using its tax subsidy to purchase a Tampa, Florida bank that focuses on aircraft financing, clearly not a strategy to serve the poor. I may take some heat for saying it, but it is unquestionably wrong for bank shareholders to pocket a tax subsidy that was meant to help the poor. I understand the law allows it, and bank board