ICBA Wants Congressional Hearings on Bank Purchases by Credit Unions

Calling for Congress to hold hearings into banks being purchased by credit unions, the Independent Community Bankers of America said Wednesday that such deals represent a “perversion” of Congress’ intent when it created credit unions.

And it ripped the NCUA for a lax regulatory environment that allowed credit unions to grow so large.

“The era of rapid growth and charter expansion began with the creation of the NCUA in 1970,” ICBA President/CEO Rebeca Romero Rainey said in her letter to the Senate Banking Committee. “The NCUA’s permissive regulation and supervision – consistently flouting the statutory limits of the Federal Credit Union Act – is largely responsible for the rapid growth of credit unions and their tax subsidy.”

She also sent letters to the House Financial Services, House Ways and Means, and Senate Finance committees. The first two committees have jurisdiction over the NCUA, while the latter two are tax-writing committees that could review the credit union tax exemption.

“ICBA believes credit union-bank acquisitions are a perversion of congressional intent in the creation of the federal tax exemption more than 70 years ago,” Rainey said.

Rainey said Congress could require the NCUA to create more rigorous standards for approval of bank purchases. She also said NCUA rules impose “numerous and daunting” hurdles for banks wishing to purchase credit unions.

She charged that restrictions on fields of membership have all but dissolved and the NCUA’s proposal to allow credit unions to raise supplemental capital would allow “mega-credit unions [to] use outside, private capital as a war chest to fund bank acquisitions.”

“What’s happening today – credit union ‘weaponization’ of their tax subsidy and lax regulatory environment to purchase whole community banks – is an order of magnitude more significant and warrants congressional scrutiny,” she said.

She added that the deals transform taxable business activity into tax-exempt activity.

CUNA Chief Advocacy Officer Ryan Donovan made it clear that credit unions are ready for such a battle.

“We welcome every opportunity to engage policymakers in a discussion about the difference credit unions are making in the lives of their members, how credit unions are fulfilling the mission Congress gave them, and why it is more important now than ever that credit unions work to advance their communities and empower financial well-being,” he said.

The ICBA letter came as part of its anti-credit union “Wake Up” campaign.

In December, Rep. Blaine Luetkemeyer (R-Mo.), whose family owns a bank, said he was worried about such purchases.

“I’m fearful of a war breaking out,” he said.

And FDIC Chairwoman Jelena McWilliams said the tax exemption and the fact that credit unions are not subject to the Community Reinvestment Act may give credit unions an advantage in purchasing banks.

NCUA Chairman Rodney Hood said such deals simply are the free enterprise system at work.

Earlier this month, the NCUA board approved a rule that attempts to make the agency’s bank purchase rules clearer. At the time, Hood said the proposal does not impose new requirements for NCUA approval of bank purchases.

Read the full letter here.