A Bay State brawl erupted Monday between bankers and credit unions after a Massachusetts Bankers Association report claimed cooperatives are using the low-income designation to exempt them from many federal regulations, including limits on business lending and membership eligibility. `
"The most disturbing result is the fact that the largest credit unions are expanding market share unabated and unchecked at the expense of consumers, taxpaying community banks and even smaller credit unions," said James Lively, president/CEO, Bridgewater Savings Bank and chair of the Massachusetts Bankers Association. "The growth and concentration in this industry is not only largely without benefit to consumers, the corporate tax subsidy gives the credit unions power to expand without any requirement to serve low- and moderate-income communities." Cooperative Credit Union Association President/CEO Paul Gentile responded to the bankers association study in an interview with the Massachusetts State House News Service and other local news outlets, according to the Cooperative Association's newsletter.
Gentile said he believes more people are choosing credit unions because of terrific rates, low fees and an interest in keeping their money in their communities. He noted credit unions have "some of the most strict regulations of any industry anywhere," including federally chartered credit unions supervised by the NCUA.
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The study was released just two days before a Wednesday deadline for state lawmakers who are considering two bills (S 551 and H 866) that would allow credit unions to accept deposits of public funds. The Massachusetts Bankers Association opposes these bills, according to the Massachusetts State House News Service.
The bankers association study concluded that the benefits to Massachusetts consumers do not appear significant enough to warrant laws and regulations that, by design or as a consequence, result in credit unions capturing a larger share of the banking market in the state.
"This study conveniently comes out around key deadlines for state legislation. It is inaccurate to call this an 'independent' study. The bankers pay for it," Gentile said in the newsletter. "They've been using the same research firm in attacks in New Hampshire and Vermont. It is baseless and disappointing to see bankers are more worried about credit unions than serving their own customers."
The study, titled "Credit Unions in Massachusetts: Growing, Consolidating, and Increasingly Exempt from Regulations," indicates that the number of low income designated credit unions in Massachusetts increased from 11 in 2012 to 57 in 2016, including four of the state's largest credit unions, each with more than $1 billion in assets. One way the credit unions achieved LICU status was by counting the many college students who have little income, according to the study.
"This low-income designation is a significant loophole that could become a greater risk if these institutions are allowed to expand exponentially with no limits on commercial lending or membership," Daniel J. Forte, president/CEO of the Massachusetts Bankers Association, said.
This suggests the rise in low income credit unions will continue to be a preferred strategy for credit union growth, according to the study.
"We're not going to kick out college students. If they're in your field of membership, they're in your field of membership," Gentile said in the Cooperative Association's newsletter. "Consumers in Massachusetts benefit from the existence of credit unions. We serve young college students as well as the older members of the Commonwealth."
Even though the credit union tax exemption purpose is to serve the financial needs of individuals with modest means, many credit unions in Massachusetts do not have to document their service to low- and moderate-income persons, according to the study.
Credit union growth in Massachusetts is increasingly occurring at federally chartered credit unions, meaning a larger share of the credit union industry – more than 50% of total assets – is now exempt from the Commonwealth's Community Reinvestment Act requirements as well as reviews designed to ensure that financial institutions serve low- and moderate-income individuals.
There are no CRA requirements for any federally chartered credit unions, including 12 of the largest 25 credit unions in Massachusetts, according to the study.
Since 2002, Massachusetts' banks have received higher CRA ratings for meeting the needs of low- and moderate-income individuals than have the state's credit unions, while the largest credit unions are more profitable than are Massachusetts' banks, the bankers' report claimed.
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Peter Strozniak
Credit Union Times reporter covering credit union operations, fraud, M&As, leagues, business continuity, and breaking news.
