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Credit Unions’ 2019 Wish List

More liberal field of membership rules are a top priority.

By Bill Poquette

What’s on credit unions’ advocacy wish list this year? Sure, they want some of the same things banks want: reduced examination burden on smaller institutions; guidance and resources for coping with CECL; collaboration on cybersecurity standards; a regulatory environment that fosters growth — things that would benefit all community financial institutions.

But the credit unions want more, much more that would enhance their existing competitive edge over banks: more liberal field of membership rules, exemption from the Community Reinvestment Act and the Consumer Financial Protection Bureau. And, of course, continuation of their previous tax exemption.

How can regulators and Congress continue to justify the tax exemption and CRA exemption when credit unions are in almost exactly the same business as banks? The main difference is the field of membership limit, which is morphing into a charade.

An egregious example of this occurred last month when Pentagon Federal Credit Union acquired Progressive Credit Union in what was labeled by the National Credit Union Administration as an “emergency merger.”

PenFed is the nation’s third-largest credit union. According to its website, “We have a proud history of serving those in the armed forces, Department of Defense, Department of Homeland Security, military associations, eligible veterans and retirees and their families. You may also qualify (for membership) through membership in select organizations within our field of membership.”

Progressive specialized in financing New York City taxi medallions, whose value has plummeted in recent years, thanks to Uber and Lyft. Whether there was an emergency is arguable, but PenFed leapt at the chance to acquire Progressive because it had a rare national charter that allows anyone to join anywhere in the nation.

“Policy makers need to see this deal for what it is,” said Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America. “The fact that this mega credit union can now serve anyone in the U.S. while exploiting its tax-exempt status is a serious problem.

“The only singular common bond that their customers will share is that they are part of this mega credit union,” she continued. “This is hardly the idea that Congress had in mind when it enacted the federal Credit Union Act in 1934 giving tax-exempt status to credit unions to serve people of modest means that have a common bond of occupation or association.”

So how are credit unions performing? Is their growth being stunted by oppressive regulation and pesky competitors crying foul?

The answer to the first question is quite well. The answer to the second is no.

Actually the performance metrics of banks and credit unions are quite similar, as of Sept. 30, 2018. Net income was up 30 percent year- over-year for credit unions, 29.3 percent for banks. CUs’ net interest margin was 3.1 percent vs. banks’ 3.45 percent. Banks excelled in return on average assets, 1.41 percent to 0.96 percent. But credit unions had more than double the loan growth year-over-year at 9.5 percent vs. 4 percent for banks. Credit union membership growth was strong, rising 4.5 percent to 115.4 million.

Do these statisics argue for more liberal field of membership rules, continued tax exemption and freedom from the CRA and the CFPB? Of course not.

Bill Poquette, Editor-in-Chief, bpoquette@banknews.com

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