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.
In a recent podcast, American Banker’s John Heltman explored the lax rules governing credit unions that are aggressively growing, increasingly involved in riskier lending, and lacking in transparency expected of all non-profit organizations.
Florida-based FAIRWINDS Credit Union to buy Friends Bank.
NCUA raised the population threshold for a rural district from 250,000 to 1 million under its new field of membership rule. This makes the entire state of Wyoming a rural district even though Wyoming has a population of 585,501 and more than half of its residents reside in urban areas. – Credit Union Watch, January 2018
In 2017, through strategic gerrymandering, Black Hills Federal Credit Union used the district loophole to connect South Dakota’s two largest distinct metropolitan areas by population size. The credit union has used the rural district geographic common-bond to expand its footprint across the state on three different occasions.
Nutmeg State Financial Credit Union fired several employees after they communicated to regulators about the executives artificially inflating profits through earnings management to boost the pay of the credit union’s CEO.
In a 2016 study, Massachusetts low-income credit unions with assets of more than $1 billion were more likely than banks to make mortgage loans to high-income borrowers, and less likely than banks to serve low-income mortgage customers.
NASA Federal Credit Union (NFCU) of Upper Marlboro, Maryland is being sued over its overdraft fee program. – Credit Union Watch, March 2016
U.S. Eagle Federal Credit Union lists among its common bond provisions “people who are 50 years of age or better and residents of New Mexico”. When credit unions were granted tax exemption, age was not listed as a form of commonality.
In 2015, the NCUA board proposed a new ruling enabling the entire state of North Dakota to be designated as a rural district for common bond purposes, even though more than half of residents live in urban areas.
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