For decades after the Great Depression, the mission of credit unions was to provide lending and savings services to low-income and rural households united by a common bond.
That is no longer the case.
Buoyed by their status as tax-exempt nonprofits, credit unions have scooped up tax-paying banks and used their increasing profits to buy naming rights for stadiums and arenas. No longer forced by Congress to abide by strict membership requirements, credit unions now serve less modest-means clients and more middle- and upper-income customers, while at the same time, increasing executive pay, according to the U.S. Government Accountability Office (GAO).
In other words, many credit unions operate like banks with two big exceptions: They don’t pay taxes and they aren’t required to adhere to the Community Reinvestment Act (CRA), which requires lending and investing in low- to moderate-income neighborhoods and communities of underserved individuals. Regulators review banks’ compliance and issue public ratings that impact everything from bank mergers and consolidations to bank relocations. In contrast, credit unions have no compliance requirements, but say that their “people helping people philosophy” (“Opinion: For Colorado, giving banks the option to sell to credit unions makes good economic sense” by Tracie Wilcox and Mike Williams, April 2, 2024) guides their investment in serving underserved communities.
This lack of community investment oversight and the real potential of significant negative impacts on local communities are why the Colorado legislature should vote no on House Bill 1351 — as long as it includes the provision that credit unions have the right to buy banks. While credit unions continue to contend that banks should have a choice to sell to them, Colorado banks have neither asked for this so-called choice nor asserted it is necessary. To be clear: We don’t want this option and don’t need it.
The 126 banks that conduct business in Colorado make the vast majority of all loans to small businesses and farmers, particularly in small towns and rural communities where they reinvest local dollars back into their communities. Additionally, in 2023, six of the top seven corporate philanthropists in Colorado were banks. There were zero credit unions in the list of 25.
When credit unions buy banks, these positive community benefits vanish. If credit unions are not meeting these needs now, what makes anyone believe they will do better when they take over banks and aren’t subject to CRA? Squeezing out local and community banks by national and large credit unions that don’t reflect the makeup or needs of the communities where they operate will essentially eviscerate small business and agricultural lending in areas around the state.
This threat is real. The tax-exempt status of credit unions gives them a “distinct advantage” over other buyers, according to a 2023 memo from the Federal Reserve, because they can offer higher purchase prices and if legally permitted, banks have an obligation to their stockholders to accept the highest sale offer.
Over the past three years, more credit unions have attempted to grow through bank purchases. More than 27% of all bank deals announced in the first two and a half months of 2024 have been credit unions buying banks. If this trend continues, it will be the highest annual percentage rate ever recorded.
While it’s too early to see what the consequences of these deals will be, the recent scandal surrounding Navy Federal Credit Union — the largest credit union in the nation — may be a cautionary tale. Navy Federal allegedly engaged in discriminatory lending and the widest disparity in mortgage approval rates between white and Black borrowers of any major lender. The investigation, and financial experts, have noted that Navy Federal may have avoided these issues if it had been subject to CRA as it identifies disparity and other lending problems before they become widespread.
Until Congress changes the rules, it is up to states to protect the ongoing investment in low- to moderate-income neighborhoods and communities of underserved individuals. Considering the substantial risks, Colorado legislators should, at the very least, table the provision wedged into this bill that allows credit unions to buy banks as it creates substantial repercussions in communities around the state.
Coloradans deserve a fair and comprehensive analysis and debate of this enormous statutory change that threatens the economic future of local communities before passing it into law.
Legislators should take the time and care to listen to their concerns.
Michael Van Norstrand lives in Littleton and is the executive director of the Independent Community Bankers of Colorado (ICBC), a nonprofit community bank membership organization.
Jenifer Waller lives in Denver and is president and CEO of the Colorado Bankers Association, which represents more than 95% of the $225 billion in assets within the 126 banks operating in Colorado.
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