When the
But if your word is your bond, does everyone who speaks share a common bond? In that case, the concept of a common bond is meaningless. That is the direction that the nation’s credit union movement, including its federal regulator, appears to be moving — and that’s something the public and policymakers need to stop and think about.
Today, credit unions are openly advertising
This metamorphosis would have profound consequences, essentially creating national credit unions with membership for everyone. Such a radical change should be openly debated — and not allowed to occur through legal loopholes and regulatory arbitrage.
To be clear, I raise these questions as a proud member of the credit union movement. In fact, I went more than a decade without a bank account. My United States Senate Federal Credit Union account, which I opened right when I began working on the Senate Banking, Housing and Urban Affairs Committee, was more than enough to meet my basic banking needs. Despite the inconvenient location, short hours and not quite top-notch technology, I maintain this account as my primary account.
Banking accounts are sticky and to be honest, I like the credit union staff and believe in the
To fulfill this mission, CUNA restricts membership.
But this restriction on field of membership has been watered down — and is headed toward becoming meaningless. Listening to sports radio in D.C., one is bound to hear Pentagon Federal Credit Union’s advertising “Great Rates for Everyone.” The Pentagon is the world’s largest office building, but why would a membership-restricted credit union advertise on a D.C.-area radio network with millions of listeners who are presumably ineligible for an employer based credit union?
When I went to do some digging, I discovered that what originally started as a credit union for employees of the War Department in 1935 has now grown to encompass over 1.5 million members. PenFed’s growth strategy seems clear,
One might wonder where the federal credit union regulator stands on all of this. The answer? The National Credit Union Administration is cheerleading the expansion. In
This would open the door to the
Expanding the definition of common bond to a meaningless level — essentially allowing national credit unions to be open to everyone — appears to be the direction the industry and its regulator are headed. This matters for several reasons.
First, it is a radical rethink of the fundamental purpose of credit unions. They were founded to be small, community-based institutions subject to a series of legal advantages (including not being subject to taxation, the Community Reinvestment Act, and being exempt from Federal Reserve oversight) and legal constrictions (field of membership, whom they can lend to, what they can invest in).
Further, as banking law has been modernized, credit unions have been routinely exempted, leaving their regulatory structure decades behind. For example, after the savings and loan debacle of the 1980s, the idea of “private deposit insurance” for banks and thrifts was eliminated. Not so for credit unions,
Policymakers also need to consider whether the advantages given to credit unions are going to their intended sources, and whether expansion would exacerbate any problems. The Government Accountability Office found that credit unions can and do pass along some of their tax subsidies in the form of lower interest rates on some basic products and loans. However, that
Fundamentally, it’s up to Congress to decide how credit unions and banks should best serve our nation. Unfortunately, the public and lawmakers often only respond after crises. These are boom times for credit unions, with
Their regulator wants to push it further, albeit while raising valid questions about the nature of geographic boundaries in the cyber age. As society becomes networked in new ways, 1930s-era definitions cease to hold their original meanings. Regulators and industries aiming to grow can manipulate these concepts. Policymakers need to engage and rethink the right role and mission for people who share a common bond and want to engage in low-cost financial services, thereby pooling risk and sharing reward.