Credit union acquisition milestone demands Washington response

By Robert Fisher

The surge in tax-exempt credit union acquisitions of taxpaying community banks that has increasingly crossed state lines has reached a new and concerning milestone.

The recent purchases of $489 million-asset Citizens Bank of Florida by $4 billion-asset Fairwinds Credit Union and $93-million Tempo Bank by $1.6-billion Scott Credit Union are the 100th and 101st credit union acquisitions of community banks since 2003.

Acquisitions like these decrease consumer access to local financial services while diminishing tax revenues that could be used to help bolster services in local communities. As policymakers look to fund infrastructure and other spending priorities—pressure is growing on Washington to examine this troubling acquisition trend.

Recent Surge

If it feels like acquisitions have surged in recent years, that’s because they have. More than one-fifth of the total have come since 2019, with acquisitions peaking at 21 that year and resuming in earnest as the economic impact of the COVID-19 pandemic has receded.

Community banks have led the financial response to the pandemic, accounting for roughly 60 percent of Paycheck Protection Program loans and saving an estimated 49 million jobs. 

Meanwhile, credit unions have focused on out-of-state community bank acquisitions, including a “low income”-designated credit union’s purchase of an institution that specializes in financing private airplanes. This is not typically a top priority for serving people of modest means with a common bond—the historic mission of credit unions that has traditionally justified their tax exemption.

The growing acquisition phenomenon illustrates how credit unions are expanding beyond the limits established by Congress. It also raises questions about the continued justification of a tax exemption that subsidizes these deals and allows credit unions to make inflated purchase offers well above the acquired banks’ book value.

Real-World Impact

The impact of this trend extends well beyond acquired community banks, affecting local consumers and taxpayers nationwide.

Because every credit union purchase of a community bank diminishes tax revenues, these acquisitions amount to a loss of roughly $300 million annually in federal income taxes alone. The credit union tax exemption for the $2 trillion industry costs taxpayers $2 billion per year and rising at the federal level. Meanwhile, community banks contributed over $12 billion in tax revenue in 2020.

This trend also affects consumers by increasing the portion of the financial services industry exempt from the Community Reinvestment Act, which assesses whether financial institutions are meeting the needs of low- and moderate-income communities. While the CRA applies to community banks and virtually every other depository institution, credit unions are fully exempt.

Further, the credit union industry’s regulator—the National Credit Union Administration—continues expanding the powers of the industry it is charged with regulating without adequately examining compliance with consumer protection directives.

Because community banks outnumber credit unions by a 2-1 margin in low-income or distressed communities, this credit union-caused consolidation is particularly detrimental to areas most in need of access to financial services.

Call To Action

With these acquisitions eliminating locally based lenders, further consolidating the banking industry, and cutting regulatory safeguards for low- and moderate-income consumers, community bankers are calling on Washington to investigate this concerning trend.

To fully understand and address this issue, policymakers should:

• Implement an “exit fee” on these acquisitions to capture the value of the tax revenue that is lost once the business activity of the acquired bank becomes tax-exempt.

• Hold congressional hearings to review how the credit union tax exemption fuels these transactions.

• Request a Government Accountability Office study on the evolution of the credit union industry and the NCUA’s supervision.

More information and resources on the risky practices, costly tax subsidies, and irresponsibly lax oversight of the nation’s credit unions are available at https://www.icba.org/our-positions-a-z/credit-union/credit-unions.

Robert Fisher is president and CEO of Tioga State Bank in Spencer, N.Y.; chairman of the Independent Community Bankers of America; and board member of the Independent Bankers Association of New York State.