ABA Perspective
Time’s Up: Congress Must Stop Credit Union Purchases of Taxpaying Banks
Rob Nichols, President and CEO American Bankers Association
After tapering off during the pandemic, the trend of credit unions buying taxpaying community banks is back — and credit unions are becoming more aggressive than ever in their pursuit of acquisition targets. Te first half of 2021 has already seen two precedent- shattering deals: Jacksonville, Florida-based VyStar Credit Union’s acquisition of a $1.6 billion Georgia bank — the largest purchase of a bank by a credit union to date — and more recently, Iowa-based Green State Credit Union’s announcement that it would simultaneously acquire not one but two community banks in the Midwest.
Acquisitions like these are a bad deal for taxpayers, a bad deal for communities and a bad deal for consumers.
At a fundamental level, they erode state and federal tax bases, diverting funds away from important infrastructure projects and other government
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initiatives. Perhaps even more egregiously, in the case of VyStar, which paid an 80% premium on its acquisition transaction, the firm’s tax-exempt status means that American taxpayers effectively subsidized the purchase.
Analysis by the Government Accountability Office shows that credit unions are now serving more middle- and upper-income customers rather than customers of “small means” — the congressional mandate behind the credit union tax exemption. Rather than focusing on low- to-moderate-income communities that share a common bond, credit unions are increasingly targeting a wealthier client base, marketing wealth management services, luxury goods financing and commercial banking services. Tis is simply not what credit unions were created to do.
Consumers also lose out when credit unions gobble up community banks, given that credit unions are not held to the same rigorous regulatory standards as banks when it comes to consumer protection or community reinvestment.
Tese deals also are bad for the credit union industry itself, as small credit unions are increasingly forced to compete with an expanding cadre of large, growth- oriented firms. Despite all this, credit unions continue to persist in their pursuit of community bank acquisitions, aided and abetted by the National Credit Union Administration, which went so far as to attempt to formally codify this process with a proposed rulemaking last year, a step ABA vigorously opposed.
Tese efforts represent yet another assault on the
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