The financial services industry is well versed in how banks feel about credit unions. The mention of certain components that make up credit unions' DNA causes bankers to react – often with falsehoods and misinformation.
You don't even have to mention credit unions' congressionally granted federal tax exemption or the industry's need for meaningful field-of-membership (FOM) reforms to get a rise out of the banking industry. Every effort by credit unions to "further promote thrift and provide access to credit for provident purposes" is immediately met with criticism by the banking industry.
But while the banking trades are experts in trying to make credit unions out as the enemy, bankers should look at their own industry. The banking industry's gripes against credit unions are short-sighted. With fintech presenting palpable risk, and the daily barrage of regulations crushing community-based financial institutions, the real threat here is not the growth of our industry.
What banks should know is that despite their attacks, credit unions are serving consumers the same today as they always have. Credit unions are member-owned, not-for-profit organizations that are managed by boards of directors that consist mostly of volunteers. They often work to meet the credit and savings needs of all consumers — hopefully a goal similarly shared by banks.
Because of their unique structure, credit unions are far more restricted in the ways they can conduct business than banks — seeking to update their antiquated FOM rules, for example, does not change this.
The more bankers attempt to tear down credit unions, the more consumers lose out on things like better rates and member service. Perhaps banks should spend more time and effort working to improve their own service rather than attacking community-based financial institutions with a proven track record of serving those banks have overlooked. As an example, Wells Fargo admitted that for years, it created millions of unauthorized bank and credit card accounts of consumers and yet the banking trades are focusing on capping the organic growth of small credit unions across the nation.
Many big banks have paid huge fines and settlements — totaling more than $135 billion – stemming from the financial crisis. What's more, many of these settlements ended up being tax deductible for the banks. It is estimated that the tax break value of these settlements totaled more than $17 billion, which is more than five times the estimated annual tax expenditure for the credit union tax exemption.
Speaking of the tax exemption — another point of contention bankers like to bring up – they too benefit from a tax break. More than one-third of banks are Subchapter S corporations and pay no corporate income tax. Not to mention, banks just received a huge tax break and will see long-term benefits stemming from the $1.5 trillion tax overhaul signed into law late last year, which gives them a lower corporate rate and more preferable tax treatment for pass-through companies.
The credit union tax exemption has long provided a tremendous value to credit union members and the overall U.S. economy. This exemption also ensures that credit unions remain low-cost providers of provident credit.
Instead of constant tension between the two industries, there is much that needs to be accomplished together. It is no secret that the total number of credit unions and community banks has declined in recent years — largely due to regulatory burdens. In fact, the consolidation of banks outpaces that of credit unions. Since the implementation of the Dodd-Frank Act, we have lost 26 percent of credit unions and 28 percent of banks. Also, the biggest banks are soaking up a greater share of assets. The top 100 banks now own 81 percent of banking assets.
And now, the Federal Reserve stands ready to amend the rules implementing the provisions in Dodd-Frank that regulate proprietary trading. Community banks just got relief from this rule in S. 2155, yet the large banks are already peevish. Though NAFCU has been fighting for regulatory relief for our members since 2010, when those bank fines stare us in the face, we have to question whether going too far will result in the same ills and bad practices that economically brought our nation to its knees.
As community-based financial institutions continue to navigate through burdensome regulations, it would be better for all in the space — including consumers — if bankers would focus on working with credit unions to achieve meaningful regulatory relief rather than spending their efforts attacking credit unions.
Credit unions stand ready to work with the banking industry to advance regulatory relief measures so all Americans can have access to safe, affordable financial products. But the teamwork doesn't have to stop there. Credit unions and banks should work together to realize the adoption of national data security standards and a level playing field for new players entering into the financial services arena.
While mega banks continue their efforts to regain consumer confidence, credit unions will be doubling down on strategies that garner the public's trust, which they've earned and maintained for more than 100 years. And, regardless of the attacks launched by our counterparts from within the financial services industry, credit unions have every intention of continuing to do what's right.
