When the Truth About Credit Unions Hits Close to Home

By Jim Edwards
ABA Viewpoint

This spring, VyStar Credit Union, a $10 billion-plus, tax-exempt institution out of Jacksonville, Florida, made a deal to acquire Heritage Southeast Bank, which is headquartered in the county adjacent to our bank’s largest office in north-central Georgia.

Personally, I know the leadership of Heritage Bank. They’re good bankers whose owners just got a very strong offer. But the impact of these deals goes beyond the name change. A lesson that more communities and more states are learning around the country—painfully.

With $1.6 billion in assets, Heritage is the largest bank ever acquired by a credit union. The credit union is paying an 80 percent premium to do so, which, given the industry’s income tax exemption, is significantly subsidized by the American taxpayer.

This unequal tax treatment of credit unions is driving these mergers—making it more attractive in many instances for a bank to choose a credit union as its buyer. They divert credit union members’ funds into paying the premium for an acquisition—not into making services more affordable.

VyStar is not out to help a defined group of customers of moderate means as credit unions were originally designed to do. Congress never intended for allegedly nonprofit credit unions to take advantage of their tax status by sponsoring NFL teams and NBA arenas and buying banks and ad agencies. But that’s exactly where the tax-exempt dollars are going—to increase large credit unions’ own profits. In fact, just two years ago VyStar entered into a 15-year agreement to have a major stadium in Jacksonville renamed VyStar Veterans Memorial Arena. On its website, VyStar talks about how their sponsorship will help veterans through their donations—but it doesn’t mention that by not paying federal taxes, it’s not contributing to veterans’ health care and retirement funds and so many other important needs that banks’ tax dollars fund.

In a letter earlier this year to the House Financial Services Committee and the Senate Banking Committee, ABA CEO and President Rob Nichols noted it is time for Congress to engage and determine whether credit union acquisitions of banks and the negative consequences that follow these transactions meet the public policy goals Congress intended when it created tax-exempt credit unions in the first place.

“The VyStar acquisition is symptomatic of a broader concern,” Rob points out. “Both credit union acquisitions of banks and dramatic growth rates by the largest credit unions reduce the tax base that supports local educational, police, fire and infrastructure needs, as well as national needs. It eliminates any responsibility to serve low- and moderate-income communities as embodied in the Community Reinvestment Act. And it raises the specter of safety and soundness and consumer protection risk to consumers and local markets as these large credit unions are not subject to the important rules and oversight applicable to our nation’s banks. We believe any thoughtful review will lead lawmakers to firmly conclude that it is time for Congress to make the changes needed to return credit unions to their original mission or at least end their outdated tax exemption.”

Standing up for a level playing field is something I have worked for my entire career in banking. This issue is affecting more and more communities directly, and your voice is important. ABA will stay on this issue and will keep you informed. Please check out ReformCreditUnions.com for more information.

ABA Chair Jim Edwards is CEO of United Bank, Zebulon, Georgia.

ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.