Despite what tax-exempt credit unions say about their taxpayer-subsidized purchases of community banks (“Credit unions buying banks is a trend on the rise,” March 2022), these acquisitions harm local economies, including underserved communities.
Credit union purchases of community banks in Alabama and nationwide is an alarming trend because credit unions don’t pay taxes, unlike their tax-paying community bank targets. The consequences are important to local communities that rely on tax revenues to support local schools, hospitals and municipalities.
Displacing tax-paying community banks with tax-exempt credit unions also expands the portion of the financial services industry exempt from the Community Reinvestment Act, a law that requires financial institutions to lend to low- and moderate-income consumers and small businesses in their local market — but does not apply to credit unions.
As the nation’s small-business lenders, accounting for roughly 60% of U.S. small-business loans, community banks have led the financial response to the coronavirus — making roughly 60% of federal Paycheck Protection Program loans to save an estimated 49 million jobs. Rising credit union acquisitions of community banks, enabled by an unjustified tax treatment, risks displacing this critical provider of small-business loans to Alabama’s local communities, which rely on this much-needed source of capital for job development and retention.
Credit unions were established a century ago to serve people of modest means with a common bond, but the data show they are falling short of that mission. Community banks are far more prevalent in low-income or distressed communities, outnumbering credit unions by a 2-1 margin. And according to Home Mortgage Disclosure Act data, community banks are more likely than credit unions to lend in census tracts with above-average poverty and unemployment.
With credit unions now using their tax exemption to make inflated purchase offers at premium prices to further the consolidation of local community banks, taxpayers are entitled to know more about how credit unions are using this subsidy. It’s time for Congress to respond with hearings investigating the evolution of this outdated tax exemption and its role in facilitating dangerous financial services consolidation.
Brad Bolton is president and CEO of Community Spirit Bank in Red Bay and chairman of the Independent Community Bankers of America.