During the Great Depression, the federal government incentivized credit unions to provide consumer-focused financial services to people of modest means by granting them a tax exemption. Given the severity of that economic crisis, the policy was crafted to help at-risk communities weather difficult times by expanding access to credit. However, the industry has evolved over the last 100 years — calling into question their preferential tax and regulatory treatment.
A recent analysis found that mega-marketing campaigns and watered down membership rules have boosted credit union growth throughout the last two decades. Ninety years after the Federal Credit Union Act became law, the $2.3 trillion industry has expanded far beyond congressional intent.
America’s $2.2 trillion credit union industry, which enjoys a free federal tax ride and minimal oversight, is busy this fall in a coordinated lobbying blitz in Washington and across state capitals to further dilute its already dubious membership requirements.
This week, the U.S. House of Representatives Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs will hold oversight hearings with prudential regulators. In addition to other financial services regulators, National Credit Union Administration Chairman Todd Harper will testify.
The problem isn’t that credit unions are offering more services to more customers. Rather, the problem is that American taxpayers are the ones propping up a multi-trillion-dollar credit union industry with a tax-free ride and little accountability.
American taxpayers have once again completed their civic duty of meeting the IRS filing deadline, but for a $2.17 trillion portion of our economy – the industry comprising America’s 4,760 credit unions – April 18 was just another Tuesday.
In December 2022, over 200 credit union lobbyists descended on Charleston, South Carolina, to plot their advocacy strategy for the year ahead. Participants made clear that the credit union industry plans to continue paying lip service to serving low- and moderate-income (LMI) communities, while directing its efforts toward expanding into new affluent markets.
As the regulatory regime for credit unions becomes more relaxed, complex credit unions have become indistinguishable from community banks. Their ability to raise investor capital with 30-year horizons facilitates growth that goes well beyond credit unions’ original purpose.
To borrow from the great line purportedly uttered by late Sen. Everett Dirksen about spending in Washington – “a billion here, a billion there, and pretty soon you’re talking about real money” – credit unions are taking huge advantage of their regulator’s relaxed position on the highly profitable not-for-profits by raising hundreds of millions of dollars a quarter from hedge funds and other for-profit investors in the form of subordinated debt.
Credit union executives will deploy to the Washington, D.C. Convention Center this week to lobby policymakers for additional industry expansion and bask in the success and growth of their industry – growth and success fueled virtually entirely by the largest credit unions, oftentimes at the expense of, or on the backs of, small credit unions.
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