Banks define competition on their terms

There is currently a major disagreement over whether or not bank holding companies should be permitted to engage in the real estate brokerage business as an extension of their incidental powers. Banks say yes, of course. They justify it by saying things such as: It is merely a logical extension of what banks are supposed to do. Why be afraid of a little competition? It’s good for everyone. Real estate brokers and their trade groups say definitely not. They say banks shouldn’t be allowed to get on our turf. Credit union leaders say we really don’t care one way or another. Why be afraid of a little competition? It’s good for everyone. However, say credit unions, we expect the banking industry to apply this same attitude regarding free market competition to credit unions as the bankers are espousing towards real estate brokers. No way, say the bankers. The situation with credit unions is different. “They don’t pay taxes and therefore they should not be allowed to compete on our turf.” Understandably, this attitude has caused credit union leaders to label banking lobbyists as flat out hypocrites. “They are talking out of both sides of their mouths,” say CUNA, NAFCU, and the California and other state leagues. I find it interesting that banking industry lobbyists continually proclaim that their only real beef with credit unions is the credit union tax-exemption. It’s the one constant that they keep coming back to. The truth is that banks have found credit unions to be formidable competitors. That’s the only reason the banking industry focuses on getting credit unions taxed. If taxed, they reason, credit unions would be crippled as a competitor and maybe even dry up and go away. Credit unions won’t and shouldn’t be taxed as long as they maintain their not-for-profit structure. But even if they were, don’t bet any serious money on the banking industry’s prognostications. Banks need to back off from their tax-exemption posturing and admit that they simply can’t beat credit union competition in the marketplace. This won’t happen, of course, so banking lobbyists will continue to be hypocrites. The banking industry will continue to spend millions of dollars and man-hours trying to achieve their goal. All on the justification that they are doing so because credit unions are tax-exempt. Baloney! Credit unions are just better at serving consumers than banks. Back to the current controversy, real estate brokerage powers for banks. Here’s where the hypocrisy really comes into play. NAFCU’s Senior Vice President and General Counsel Bill Donovan said it best: “.the irony is not lost on us that the banking industry is continuously and aggressively seeking to expand their ability to provide all types of financial services and enter new competitive markets, while, at the same time, lobbying Congress and petitioning the Courts in an effort to put constraints on credit unions and our ability to serve our members.” In other words, the banking industry is saying that the real estate brokerage industry shouldn’t fear competition from banks and shouldn’t try and prevent or eliminate it. Shouldn’t a simple translation of this logic be that the banking industry in turn shouldn’t be concerned about credit union competition and not try and block it? On the other hand, everybody and their brother is getting into the banking business. Who can blame the banking industry for wanting to get into the insurance business, (which they did)? Or the brokerage business, (which they have done?) Or the real estate brokerage business, (which they are trying to do)? Insurance companies have returned the favor and are getting bigger in the banking business. So are automobile clubs, discount stores, department stores, convenience stores, and eight zillion “e” something or others, etc. Ironically, the banking industry seems to accept all these new competitors and expects real estate brokerage firms to have the same laissez- faire attitude towards them. But credit union competition is an entirely different story. Back to credit unions and real estate. In the very same issue of Credit Union Times (March 21, 2001) in which I first mentioned the banking lobby’s two-faced approach to competition via their effort to invade real estate brokerage turf, there were two separate articles describing credit union initiatives that hit pretty close to home. The first article, datelined Milwaukee, Wis., reported that Central States Mortgage Co., a CUSO partially owned by 19 credit unions, is in the final stages of purchasing a controlling interest in HomeSale Realty, a real estate brokerage firm. This was not the first such credit union foray into real estate. The second article, this one datelined Scottsdale, Ariz., reported that CU Realty, an online real estate solution provider for credit unions, has gone live with a local credit union and that six more are in the on-deck circle. More credit union ownership and partnership arrangements that would put credit unions squarely in the real estate brokerage business are under consideration elsewhere. So are credit unions being hypocritical by calling banks hypocrites? Not really. Remember earlier I said that credit unions are on record as saying they don’t care if banks get involved in the real estate brokerage business. The difference should be clear. The banking industry wants to determine when it’s OK to compete. Credit unions say, put your money where your mouth is! The real point in all of this is very simple. Competition is a good thing for the American consumer. It makes no sense for the banking industry to pour an increasing amount of its resources into fighting credit union competition in the courts under false pretenses, while advocating making competition between the banking and the real estate brokerage industry permissible. Nor does turf protection make any sense, whether it be between segments of the financial services industry, or between two credit unions. What does make sense is being honest about all efforts to serve the changing financial needs of consumers/members. All hypocrites need to be exposed for what they really are. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected].