Comparing CUs to Savings & Loans, 51 Bankers' Groups Demand Congressional Investigation

WASHINGTON–Alleging credit unions are showing “troubling parallels” to the 1980s savings & loan crisis, state bankers associations in 50 states plus Puerto Rico have sent a joint letter to the Ways & Means committees of both the House and Senate demanding renewed oversight over credit unions, including hearings on whether the “tax- exempt credit union industry lives up to the ideals of its founding.”

The bankers are asking Congress to examine whether it “continues to be appropriate to exempt federal credit unions from Form 990 transparency and reporting requirements required of other non-profits.”

“Moreover, Congress should further examine whether the National Credit Union Administration (NCUA) is promoting policies that make the industry less safe, less sound, more bifurcated, and less directed toward its statutory mission to serve consumers of ‘small means,'” the bankers’ letter states.

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Former NCUA Chairman Responds

Dennis Dollar told that Congress should look closely at how banks have exited underserved areas while CUs have stepped in.

“From a credit union perspective, that the bankers who birthed the need for CRA in the 1970s with their decades of redlining and discrimination would accuse credit unions, who for 50 years have filled the void bankers left in distressed neighborhoods nationwide, of ignoring the needs of lower income Americans is somewhat akin to being accused of having typhoid by Typhoid Mary herself," said the former NCUA chairman and principle at Dollar Associates.

Dollar said it like being accused of a disease by its carrier--"not particularly effective in addressing the disease itself. Let’s look at the expansion growth in those underserved neighborhoods for credit unions versus the bank branches being closed in those same areas.  In lending, financial education and payday lending alternatives, it is credit unions that are setting the mark of service to underserved communities nationwide.”

CUNA’s Response

CUNA’s Ryan Donovan responded to the letter by stating, “It’s pretty rich for an industry that nearly brought down the economy a decade ago, has been subject to $260 billion in fines and settlements since the crisis and then scored a nearly $30 billion windfall in the tax reform bill to suggest that credit unions are in need of greater oversight.”

The bankers argue in the joint letter the credit union income tax exemption was granted at the height of the Depression to encourage credit unions to promote financial services to groups of “small means” consumers united by a common bond. 

“Against this mission to serve a higher purpose, new research by Federal Financial Analytics and respected analyst Karen Shaw Petrou shows that modern credit unions are a contributing factor to the widening of economic inequality,” the letter states. “The report details how credit unions, especially larger credit unions, are increasingly expanding services to high-income customers, promoting lucrative business lines (including commercial real estate development and aircraft finance), and making high-risk loans without adequate capital. Credit unions are increasingly even buying up tax-paying banks, leveraging their tax exemption to permanently take taxpayers off the tax rolls (more of these deals have already been announced in 2019 than all of last year). Petrou concludes that these efforts come at the expense of serving the needs of low- and moderate-income individuals, the very population segment credit unions were created to serve.”

NAFCU Reaction

"The letter fails to disclose this important fact to lawmakers on Capitol Hill which should raise alarming questions about bank lobbyists' true motives," said Carrie Hunt, NAFCU's executive vice president of government affairs and general counsel. 

In addition, NAFCU Vice President of Legislative Affairs Brad Thaler wrote to lawmakers to defend credit unions, noting the irony of these baseless banker attacks. He asserted that bank lobbyists should instead analyze "why [banks] caused the financial crisis and how they can stop abusing consumers today" and went on to say that the true goal of the bankers is to eliminate credit unions as competition.Thaler also highlighted credit unions' strong work in assisting communities, serving 117 million members nationwide, contributing to meaningful economic growth and the benefits of credit unions' tax exemption. Thaler's letter to lawmakers is available here.

‘Alarming Trend’

The letter further alleges the report highlights what the bankers called “another alarming trend,” which is that NCUA’s capital requirements and other safety-and-soundness rules are increasingly substandard.

“Citing the repeated findings of NCUA’s Inspector General that the credit union supervisory process lacks a timely and aggressive approach, the report establishes significant evidence of what Petrou calls ‘charter arbitrage,’ with troubling parallels to the 1980s Savings & Loan crisis, which of course ended in a taxpayer bailout,” the letter reads. 

The bankers want Congress to also investigate NCUA for its announcement that later this year it will “unlock the corporate debt markets and allow profit-seeking investors, potentially including institutional investors like hedge funds, to invest,” as well as NCUA’s recent relaxation of appraisals rules on commercial real estate. 

“The credit union debate is often framed in competitiveness terms – whether credit unions use tax benefits to compete with an advantage over community banks,” the letter reads. “To be sure, state bankers associations have argued for decades that there is no reason why the largest 5% of credit unions, which enjoy 75% of credit union industry profits and look and act just like the taxpaying banks they compete with, should be completely free of federal income taxation. Credit unions have successfully used that ‘banks vs. credit unions’ rhetoric to avoid anyone taking a serious look at what is actually happening in their industry. As a result, when the inevitable loud reply to this letter comes from the credit union lobby trying to shift the conversation toward banks, keep in mind this misdirection is intentional, and ultimately non- responsive to the serious issues Petrou raises.

“We believe you will conclude that congressional oversight and serious reforms should be urgent priorities,” the letter concludes. 

Deserves to be Taken ‘Seriously’

John J. McKechnie, senior partner with the Washington advocacy firm Total Spectrum said in response to the bankers’ letter, “Although there is nothing new in their call for an oversight hearing, I think taken as part of a larger effort that included scolding letters to NCUA on capital standards, the bank lobby seems to has turned up the volume as we head into the August recess.  I hope everyone in the credit union community takes the higher decibel level seriously, and takes every opportunity to educate lawmakers on the credit union difference.”

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Word Count: 1267
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Copyright Year: 2019
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