By Claude Solnik
BridgeTower Media Newswires
LONG ISLAND, NY - The seemingly never-ending battle between banks and credit unions is going far beyond competition for loans, as banks go to court to try to block credit unions' efforts to increase commercial lending.
Credit unions are nonprofit financial institutions that pay no taxes, a freedom designed to let them serve specific, traditionally small, communities in underserved areas or companies.
They have, however, grown exponentially, arguing that serving a wider number of members lets them provide benefits in the form of low rates to more companies and individuals.
Banks argue that credit unions have long since left behind their initial mission and become more like them without the ability to issue stock in public markets or the requirement to pay taxes.
The National Credit Union Administration recently took the battle to a new level, allowing credit unions to do more commercial lending and loosening restrictions on adding members.
The Independent Community Bankers of America fired back in September with a lawsuit against the National Credit Union Administration, challenging the agency's loosening of commercial lending.
The result is a courtroom clash and the latest battle in a long fight as credit unions argue they want to serve more and banks say they're expanding too rapidly, increasing risk and overstepping the bounds of their original nonprofit mandate.
"In exchange for these well-established limitations, credit unions have long enjoyed an exemption from nearly all taxation, both federal and state," according to the lawsuit the ICBA filed against the National Credit Union Administration.
Credit unions tout their similarity to banks in marketing and many other means, as they become able to make more commercial loans, which they see as a positive development for borrowers.
"We are pleased to offer affordable banking services to the Long Island community," NEFCU says on its website. "At NEFCU you'll find all of the same services you get at your local 'big bank' but with better rates and lower fees they simply cannot match!"
Federal credit unions see their growth as a sign that they're filling a need. Bethpage Federal is approaching $7 billion in assets, while Teachers Federal topped $5.4 billion, NEFCU broke $2.5 billion, Island Federal is at $1.2 billion and Suffolk Federal topped $1 billion, according to the NCUA.
The agency sees itself as adapting: Growth is a good thing as credit unions sign up more members and make more loans.
"This comprehensive rule expands consumer access to credit and provides them a safe place to invest their life savings," NCUA Board Chairman Rick Metsger said of easing membership rules. "We cannot anchor our regulations to the past; we have to keep pace with how consumers access financial services today."
NCUA Board Member J. Mark McWatters said "changes will expand access to affordable financial services for consumers, including those in underserved communities."
Banks, however, argue that credit unions are not trying to serve the underserved, but rather to become more like them in nearly every way except taxes.
"They are pushing to get all the powers that banks have, but they don't want to take steps to be on the same level playing field," Riverhead-based Suffolk County National Bank CEO Howard Bluver said. "They don't make a distinction anymore."
Independent Community Bankers of America CEO Camden Fine said the NCUA has been "illegally extending the industry's taxpayer-subsidized competitive advantage-further demonstrating its credit union industry cheerleading status."
Credit unions also aren't subject to the Community Reinvestment Act, "so they're not required to serve their communities the way banks are," Bluver said.
Although various credit unions contacted for this article declined to comment, the industry has long said it is a welcome option to borrowers. Banks, they say, still dominate deposits and lending and don't want more competition.
"It just seems to me that their regulator can interpret their rules any way they want," said Douglas Manditch, CEO of Empire National Bank and chairman of the Independent Bankers of New York. "They send their own interpretations out. They keep increasing and increasing."
There are actually fewer credit unions, albeit more assets and members, largely due to mergers. There were 5,887 federal credit unions as of June, down from 7,239 five years ago as credit unions, like banks, consolidate.
The number of members over that time frame rose to 104.9 million from 91 million as assets grew to $1.3 trillion from about $924 billion.
On Long Island, Bethpage has topped 300,000 members, while Teachers is approaching 270,000, NEFCU has roughly 170,000 and Suffolk nearly 60,000.
"We will develop and expand our community outreach programs beyond the Long Island region," Bethpage Federal CEO Wayne Grossé said after acquiring Montauk Federal Credit Union.
Linda Armyn, Bethpage's senior vice president of corporate affairs, at the time said the credit union can now serve members far beyond its home base.
"Our territory has expanded beyond Long Island and we now have a branch in New York City," Armyn said. "Our charter is not limited by geography at this time."
Bankers say that if credit unions are allowed to expand, at some point they should surrender their tax exemption.
"If credit unions want to eliminate the common bond requirement and operate like banks, they should be taxed like them," Fine said. "They can't have it both ways."
Credit unions say they have members, not shareholders, and pump money back into their business, benefiting borrowers.
Banks argue that by allowing credit unions to do more commercial lending, the NUCA is "putting consumers and the financial system at risk."
"The NCUA should focus on enforcing the law-not carrying water for the industry it is charged with regulating," Fine said. "The financial system should not operate with regulatory agencies like the NCUA having their thumbs on the scales."
Bethpage Federal recently acquired Montauk Federal Credit Union, which got into trouble over lending related to taxi medallions.
"They were competing on the commercial side," Manditch said. "They underwrote loans with ridiculously liberal terms. When the medallion industry got themselves in trouble because of Uber and whatever, these loans started to fail."
Bankers argue that credit unions are expanding not simply because it benefits the public, but because of lobbying clout and the ability to mobilize members.
"The only legislation that gets pushed makes it easier for credit unions. Congress is scared to death to do anything that will upset the credit unions," Bluver said. "They have huge lobbying power, a captive regulator and they don't have to pay taxes. As time goes on, their powers are expanding more and more to be bank-like. They have the perfect storm."
Manditch sees credit unions as naturally seeking more freedom without taxation. Who wouldn't want that option? But he sees the effort to obtain the right to accept municipal deposits as a particular thorn in the side of banks.
"I think credit unions have taken advantage of the situation. They want to take advantage of it even more," Manditch said. "So far, we've been able to stave off that situation. Why should they get municipal deposits, if they don't pay taxes? Why should they get the taxpayer's money if they don't pay taxes?"
Published: Mon, Nov 14, 2016
