Yet that is precisely what credit unions are asking Congress to do. They are in town this week to ask that they be allowed to more than double their congressionally mandated limit on corporate lending.
That limit was put in place in 1998 in recognition that credit unions have limited business lending experience -- and as a reminder that credit unions were chartered to serve individuals of modest means, not developers of luxury condos and shopping malls.
But a group of nontraditional credit unions that resemble banks in every way except their tax rate (0 percent) has been chafing under this modest restriction, determined to wrest more business from community banks, whose bread and butter is serving their local business customers.
Ironically, the action credit unions seek would give them more bank-like powers than many banks, considering business lending by federal savings associations is restricted to 20 percent of assets.
The nation’s community banks are outraged by this power grab and concerned that, in addition to being deluged with a flood of new regulations, they may also need to fend off business- poaching credit unions whose tax status gives them a 30 percent pricing advantage.
What’s worse, small-town bankers worry they will be left to pick up the pieces when credit unions with newfound powers do what so many of the inexperienced do: underestimate and overextend.
Many traditional credit unions, like Glendale Area Schools Credit Union in California, share this concern and oppose legislation increasing their business lending limits. “The vast majority of credit unions will not benefit from the expansion of the member business lending cap, but will pay higher future premiums arising from credit union failures, as some credit unions recklessly gamble expanding their business lending,” CEO Stuart Perlitsch wrote in an April letter to Senate leaders.
These institutions have not only witnessed some fairly spectacular credit union failures, such as Texans Credit Union, but they are also paying a steep price to cover the costs of five failed corporate credit unions – costs that could exceed $14 billion. And though credit unions pay no taxes, taxpayers are nonetheless on the hook for over $5 billion dollars that credit unions currently owe the U.S. Treasury.
Credit unions wrap their request in promises of loans, jobs and economic growth. But legislation that doubles their commercial lending powers is really about liberating the tax-privileged institutions from important regulatory safeguards that are intended to reinforce credit unions’ mission, safety and cooperative nature.
Credit unions’ tax exemption currently costs the U.S. Treasury $2 billion annually. By contrast, their competitors – the 6,000-plus community banks that are the lifeblood of towns across the country – contribute $4 billion annually in taxes that support our nation and those communities. Congress should not even consider legislation that would expand the country’s deficit, dole out more benefits to tax-avoiding credit unions and harm community bankers who shoulder their fair share.
Keating is president and CEO of the American Bankers Association and former two-term governor of Oklahoma.