Big Banks Sue Credit Unions to Prevent Broadening of CU Membership Rules
Credit unions are trying to modify their membership rules to allow more people to qualify for CU membership, and banks aren’t happy about it. In fact, banks are suing to prevent the changes.
Recently, the National Credit Union Administration announced that it was loosening what are called common bond requirements.
These requirements essentially determine which people are eligible to join a given credit union.
Historically, credit unions were somewhat – or very – restrictive in terms of who could join.
Some credit unions limit their membership to people who work for a specific company, (plus retirees and family members of employees).
Others cast a much wider net, catering to all people living in a geographic region.
Often, these “fields of membership” overlap – allowing a larger number of people to join.
In recent years, it’s gotten to the point where nearly everyone in a community is eligible to join a CU.
What NCUA is trying to do is expand fields of membership even further – allowing even more Americans to become members of the credit union of their choice.
Banks are crying foul, and their lobbying group, the American Bankers Association, is suing to prevent the likely result of the NCUA move: a big expansion in credit union membership across the country.
Under NCUA’s final rule, which is scheduled to take effect Feb. 6, Federal Credit Unions can apply to serve entire geographic regions – or so-called “rural districts.” These can include up to 1 million people.
In fact, ABA claims that the new districts would include the entirety of Alaska, North Dakota, South Dakota, Vermont or Wyoming.
ABA is suing NCUA over this expansion, claiming that federal CUs – which are exempt from paying federal and most state taxes– would gain an unfair competitive advantage over banks if they are allowed to let more people join.
The basic argument is that CUs only deserve a tax-favored status if they maintain strict restrictions on who can join.
What the banks leave out of their legal arguments, press releases and propaganda is that credit unions are not-for-profit cooperatives. They don’t pay taxes like for-profit banks do because they are not set up as money-making businesses.
If you agree with the NCUA position, you might want to follow this fight. After all, the ultimate goal of the ABA is to convince Congress to legislate against credit unions by taking away their tax-privileged status.
In other words, the outcome of this latest lawsuit may embolden the ABA to push harder for legislative action in the banks’ favor. If this happens, you’ll want to write your congressperson.
Copyright Today’s Credit Unions