Like many sports fans, I spent some time this past weekend watching the best golfers in the world tackle the U.S. Open at Chambers Bay, near Tacoma, Washington. This Pacific Northwest course proved to be extremely difficult, even for world-class golfers, with its undulating greens, massive dunes and coastal winds. The course is so challenging that it’s almost unfair to the competing golfers. Yet all of the contestants have to play the same 18 holes each day, and all must perform within the same boundary of rules. That context makes the tournament fair, even if it is difficult.
While this theory of fairness seems obvious, imagine if half of the golfers were permitted to play by a different set of rules that were significantly less burdensome. No one would believe that arrangement to be fair, and no one would take seriously the winner of such a rigged system. Unequal rules defy what we deem to be just and fair. After all, whether in the arena of sports, games or business, the rules are the rules, right?
Not always. In the financial services world, commercial banks, which make up about half of the deposit-gathering financial services business, operate in an environment in which they are burdened with much more regulation than ‒ and even have a profit disadvantage against ‒ one of their main competitors: credit unions.
Credit unions are allowed to provide the same financial services that commercial banks provide, but they are not required to comply with Community Reinvestment Act regulations, they do not pay any federal taxes and, in most states, they do not pay state taxes. Commercial banks, by contrast, must comply with myriad regulations in addition to CRA requirements. Commercial banks also pay federal and state taxes in support of this great country. How is this disparity possible? It is because when credit unions were first chartered through the Federal Credit Union Act of 1934, they shared a common bond. Back then, each credit union primarily served a single employer, and nearly all credit union members were blue collar workers. Those early credit unions were founded on the premise that they were to make credit available to people of modest means, for which service they were given a tax exemption.
Fast forward to today, and we find a radically different credit union industry. Today over 200 credit unions hold more than $1 billion in assets, making them larger than 90 percent of taxpaying banks. Very few credit unions continue to abide by the traditional common bond rules ‒ many have become “community” credit unions, which purport to serve a designated geographic area. Meanwhile the National Credit Union Administration, the compliant regulator of the industry, continues to stretch this common bond definition beyond recognition. As to serving people of modest means, that too has changed. Today’s credit union industry, in numerous surveys conducted by independent organization, including the U.S. Government Accountability Office, have an average customer base that is more affluent than that of commercial banks.
Although it seems nonsensical, credit unions today have the power to make commercial loans, not just loans to persons of modest means. They are limited in the amount of commercial loans that they can make, but are lobbying Congress hard to get that amount increased. I believe that credit unions should have the same powers that commercial banks have, but only if they uphold the same responsibilities as commercial banks. Just as the U.S. Open golfers must all play by the same rules, it is time for credit unions to play by the same rules as commercial banks ‒ by paying federal and state taxes, and by complying with the same regulations.
– S. Joe DeHaven