Bankers urge policymakers to crack down on credit union-bank mergers

WASHINGTON — Industry trade groups are calling on regulators and lawmakers to crack down on credit union purchases of banks after the largest-ever such deal was announced in March.

The Independent Community Bankers of America and the Community Bankers Association of Georgia urged the Federal Deposit Insurance Corp. in a letter dated May 15 to reject the purchase that the $1.6 billion-asset Heritage State Bank in Jonesboro, Georgia, struck to be sold to the $10 billion-asset Vystar Credit Union based in Jacksonville, Florida.

Separately, American Bankers Association President and CEO Rob Nichols described Vystar’s planned purchase of Heritage part of a “disturbing trend” that Congress needs to address, ahead of a virtual House Financial Services Committee hearing titled “Oversight of Prudential Regulators” scheduled for May 19.

Community bankers say they are concerned that Vystar’s purchase of Heritage will lead to a decrease in Community Reinvestment Act lending. Unlike banks, credit unions are not required to comply with the federal CRA law.

“We believe this acquisition will lead to a substantial decrease in the CRA-qualifying loans and investments that benefit low- and moderate-income customers in Heritage Southeast’s assessment areas,” wrote Mickey Marshall, director of regulatory legal affairs at the ICBA, and John McNair, president and CEO of the Community Bankers Association of Georgia. “Additionally, we believe that this merger will result in branch consolidation and limited access to financial services" for low- and moderate-income households.

Nichols said that credit union purchases of community banks are also a “bad deal for taxpayers, echoing Community bankers have similarly warnedwho noted that credit unions' acquisitions of banks in recent years has resulted in more than $264 million annually in income tax losses.

“These transactions are effectively corporate inversions without leaving the country,” Nichols said in a letter to Democratic and Republicans leaders on the House and Senate banking panels. “At a time when state and local government financing is also a major public concern, the increasing frequency of these deals and loss of income-tax revenue also becomes an expanding problem for local communities.”

Nichols added that the recent trend of credit union purchases of banks warrants lawmakers’ reconsideration of credit unions’ tax exemption.

“We believe any thoughtful review will lead lawmakers to firmly conclude that it is time for Congress to make the changes needed to return credit unions to their original mission or at least end their outdated tax-exemption,” Nichols said.

In response to the ABA's letter, Dan Berger, president and CEO of the National Association of Federally Insured Credit Unions, said in a letter to Congress that credit union purchases of community banks are more beneficial to local communities than megabank acquisitions of smaller institutions.

"Bank and credit union mergers are typically a win-win for a local community that may lose its community-focused financial services, or even local employees and branches, if a mega-bank buys the local community bank," Berger said. "Credit union-community bank mergers often mean employees retain jobs and branches remain open with a focus on the members in the community."