Editor’s note: This column ran in the Feb. 8 edition of The Pulse, a weekly BankBeat email sent to subscribers which also includes top stories from the previous week.
Several credit union-bank acquisitions have already been announced in the first five weeks of this year, continuing their record pace of recent years and providing further evidence that tax-exempt CUs should adhere to the same tax structure as banks.
Three CU-bank buys have been announced this year in the Upper Midwest. Oshtemo, Mich.-based Advia Credit Union announced in January that it plans to further expand in Illinois by acquiring Chicagoland-based NorthSide Bank. The nearly $3 billion Advia Credit Union is already in the top 3 percent of largest CUs in terms of asset size and has been steadily growing in recent years. Wabash, Ind.-based Beacon Credit Union announced its pending acquisition of Salem, Ind.-based Mid-Southern Savings Bank later this year. The acquisition, announced Jan. 26, is Beacon’s first of a community bank and continues its recent expansion into southern Indiana. Also, Moline, Ill.-based Empeople Credit Union announced on Jan. 30 its pending acquisition of Lomira, Wis.-based TSB Bank.
A record 16 credit union bank acquisitions were announced in 2022, according to the American Bankers Association, and credit unions’ share of total bank purchases reached an all-time high last year. Credit unions have acquired more than 80 banks in the past decade.
CU assets continue to grow as they increasingly drift from their original focus on serving traditionally underrepresented groups. Though the Credit Union Act of 1934 included rules governing membership requirements, those limits have since been rendered effectively meaningless, said Scott Hodge, president emeritus of Tax Foundation, a Washington, D.C.-based think tank. “Studies show that credit unions increasingly serve upper-income families and serve a smaller share of low-income customers than banks,” Hodge said in a Jan. 30 report calling for the elimination of credit union subsidies.
The largest credit union in the country, Navy Federal Credit Union, has the widest disparity in mortgage approval rates between Black and White borrowers of any major lender, according to CNN. The nearly $170 billion CU, which lends to military servicemembers and veterans, approved more than 75 percent of the white borrowers who sought a new conventional home purchase mortgage in 2022, compared with less than half of Black borrowers who applied for the same type of loan.
According to the Tax Foundation, the amount of credit union assets more than doubled from 2012-22, to $2.17 trillion from $1.02 trillion, as the number of CU members increased 44 percent to more than 135 million from 94 million. Hodge estimated that taxpayer CU subsidies have cost banks more than $80 billion in profits over a decade.
Removing the tax-exempt status of credit unions will be challenging politically and lead to much pushback from credit unions. According to the National Association of Credit Unions, removing the tax-exempt status of credit unions would require them to focus on increasing profits instead of serving their member-owners; lead to worse rates, higher fees and reduced access to capital; and an erosion of their volunteer base.
Still, as credit unions continue growing at the expense of banks, policymakers should eliminate their tax exemption. Given how CUs have evolved to directly compete with banks, they should be taxed like banks.