Community banks and credit unions for years have been the Hatfields and the McCoys of the business world.
The two sides have feuded over issues including, but not limited to, credit unions’
Now, one credit union trade group is taking its side of the story to consumers.
The National Association of Federally-Insured Credit Unions recently launched a “
NAFCU said it has never run a campaign like this before and normally focuses on promoting credit unions. But the association “could not sit by any longer and let the attacks from the banking trades go unanswered,” said Greg Mesack, NAFCU’s senior vice president of government affairs.
The drumbeat from the banking lobby has grown stronger in recent months.
For example, Laurie Stewart, the president and CEO of Sound Community Bank in Seattle and a former chair of the American Bankers Association, in November called on policymakers to revisit the
“I would encourage Congress to shine a light on the entire industry and really understand what credit unions are doing, at what levels, when they look like banks, when they don’t look like banks and then move to a rational form of taxation, leaving a not-for-profit exemption for true not-for-profits,” she said.
In addition, the banking trade groups
Ultimately, the proposal saw a significant rewrite that left few on either side of the debate completely satisfied.
The NAFCU campaign argues that banks receive $95 billion in tax breaks each year. Mesack said the group compared what banks paid in taxes before and after the Tax Cuts and Jobs Act of 2017 based on publicly available data and its own calculations.
“The aggregate difference over those periods totaled a staggering $95 billion per year, which greatly exceeds the credit union tax exemption,” he said.
The ABA called the ad campaign “a shameless but ineffective effort to distract from the serious questions being raised” in terms of how far it believes the credit union industry has strayed from its mission of serving low-income communities.
“Members of Congress and the NCUA should take a very hard look at how the credit union industry is spending its unmerited tax break,” said ABA spokesman Jeff Sigmund.
Chris Cole, senior regulatory counsel for the Independent Community Bankers of America, said it estimates the credit union industry benefits from $2 billion in tax breaks each year.
He disputed the $95 billion tax break figure for banks as misleading. He noted that this figure includes bank income that is passed directly to shareholders. Many community banks do not pay taxes on that income, but their investors do, he noted, referring to S corporations, whose income or loss is divided among and passed through to shareholders.
The campaign is really intended to blunt calls for Congress to more aggressively oversee credit unions and the NCUA, said Keith Leggett, a retired American Bankers Association economist and a longtime credit union observer.
“What they’re doing is playing to Washington, D.C., not to the public at large,” Leggett said. “I think people still think of credit unions being little mom-and-pop institutions. They’re a $2 trillion industry now. There are 19 credit unions that have more than $10 billion in assets, and you’re going to see more and more creeping above that $10 billion threshold.”
Still, most agree that credit unions compete much more with community banks for loans and members than they do with the megabanks and regionals. So why take the fight to the big banks?
Mesack said all community financial institutions are under attack by big banks. The three biggest banks in the U.S. have more than one-third of all deposits, and the top 10 banks have 49% of all deposits in the country, he said.
Since the financial crisis, government bailouts of large financial institutions and the enactment of the Dodd-Frank Act, the big banks have only gotten larger and more aggressive, Mesack said.
“The big banks have market dominance and are using their power to push their trade associations to attack credit unions and eliminate the competition,” he said.
Credit unions and community banks could join forces to battle the big banks, said Matt Selke, CEO of the $89 million-asset Pinnacle Credit Union in Atlanta.
“Would smaller community banks ally with credit unions in this campaign? I would argue many, perhaps not all, have more in common with credit unions in serving their communities than big banks,” he said.
Selke said those two industries teaming up to differentiate smaller financials from big banks could be beneficial to both sides.
Pinnacle finds it easier to obtain new members from the big banks than it does to take customers from community banks as the value Pinnacle brings is easier to communicate to customers, who are often just "numbers” to their mammoth financial institution, Selke said.
Matt Deines, president and CEO of the $1.8 billion-asset First Northwest Bancorp in Port Angeles, Washington, said the NAFCU campaign makes some sense — strictly from a practical perspective — because the big banks and Wall Street are an easier target.
“I think you ask the typical community bank customer if they like their bank, they’ll say yes. And that’s probably true for credit unions as well. I think that’s why we on the bank side of this haven’t had much luck on the whole issue of tax exemptions,” he said. “People don’t get fired up about it because they are happy with their own situation and don’t have to think about it. But the credit unions still might want to be cautious here about how they attack banks — because they might just end up drawing attention to their tax status for us.”
Robert Bolton, a bank investor and president of Iron Bay Capital, noted the feud between banks and credit unions over taxes is long-simmering and said he’s skeptical anything will come of this episode.
“But in the end, I don’t think the big banks care,” he said. “I agree the big guys are an easier target, but I can’t see how they’d pay any attention to this, much less respond. They’ve got much more pressing issues to deal with — inflation, supply chain disruptions, COVID and the economic uncertainty it seems to keep creating. So[they’re] an easy — but maybe misguided — target.”
But Mesack said the banking trade associations’ attacks on credit unions have been ongoing, and NAFCU was tired of sitting on the sidelines.
“They’ve been spinning the same old tale but refuse to be held accountable for banks’ own actions,” Mesack said. “NAFCU felt it was time to push back.”
John Reosti contributed to this story.
