Wisconsin Bankers Association Opposes Assembly Bill 478, Which Would Expand Authorized Activities and Powers of Credit Unions

At today’s hearing of the Assembly Committee on Financial Institutions, the Wisconsin Bankers Association and member bankers from around the state expressed opposition to Assembly Bill 478, which would provide credit unions with even more tools to grow beyond the intention of their original chartered mission much to the detriment of Wisconsin’s taxpaying banks and citizens.

In the early history of the existence of credit unions, they were either employer-based or focused on serving well-defined neighborhoods to serve consumers of modest means, which is the rationale for their income tax-exempt status. It is not difficult today for almost anyone to become eligible for membership in one of Wisconsin’s growth-oriented $1 billion and larger credit unions. In the past eight years, Wisconsin has seen the acquisition of five tax-paying community banks to large credit unions, which translates to a direct loss of tax revenue for the State of Wisconsin.

“Continuing to require that credit unions only do business with members is inherent in the public policy rationale behind which the tax exemption is given,” testified WBA President and CEO Rose Oswald Poels. “Making a substantive change to this foundational public policy principle as proposed in AB 478 should then also call into question, as other states have, the state tax exemption.”

“In Wisconsin, there are 13 credit unions that are over $1 billion in asset size that compete daily with banks like mine across the state. The services offered are no different than those offered by banks, and yet the credit unions enjoy a significant advantage in their income tax-exempt status,” testified Capitol Bank President and CEO and WBA Board Chair Ken Thompson. “Capitol Bank regularly experiences competition from growth-oriented credit unions operating in our market. . . Competition is normally healthy and good for consumers when all parties involved operate on a level playing field. However, that is not the case with the credit union industry.”

Joining WBA on a letter respectfully opposing Assembly Bill 478 as drafted are 87 banks from around the state. The letter explains that taxpayers can no longer afford to continue subsidizing the credit union industry; the goal is to have these large, aggressive credit unions return to their original mission or become subject to the same regulatory, supervisory, and tax requirements as banks.

Following the latest acquisition of a Wisconsin community bank by a credit union, WBA has written to Wisconsin’s Federal Congressional delegation and to members of the Wisconsin State Assembly Committee on Financial Institutions to further illustrate that it’s time for growth-oriented credit unions to be paying their fair share of taxes. Read the letter below:

Yesterday, Dupaco Community Credit Union, a $2.6 billion credit union headquartered in Iowa, announced their acquisition of Home Savings Bank in Madison. According to the joint release, the strategic acquisition will increase Dupaco’s total number of branches to 20 and total assets to approximately $2.8 billion based on 2021 financial data.

A bank’s decision to sell is completely up to bank ownership, directors, or shareholders. While we at WBA are disappointed to see this type of acquisition occurring, we do not question the Home Savings Bank’s motivations for doing so. However, we are hopeful this deal sparks conversation among all members of Congress as to why these deals are possible in the first place.

Growth-oriented credit unions have managed to become nearly indistinguishable from tax-paying banks. This is because they enjoy federal and state income tax exemptions, less stringent oversight, and do not need to adhere to community reinvestment obligations.

Wisconsin banks have opportunities to make acquisitions in these scenarios, and there were institutions that sought to purchase Home Savings Bank. But given the future tax savings credit unions can realize, they can offer purchase terms with which banks simply cannot compete. This is wrong!

This is the fifth credit union acquisition of an income tax-paying community bank in Wisconsin in the last eight years. There have also been numerous credit union purchases of bank branches and bank assets. Each one of these transactions has revenue implications for the State of Wisconsin and the country; bank assets accumulated by credit union acquisition cease to be taxed at the state and federal level. As of this year, credit union acquisitions of community banks nationwide have surpassed 100.

Dupaco’s deal here is another example of a troubling trend in the financial services industry. Rather than return more money or reduce prices and cost to members, credit unions continue to use their tax advantages to expand their footprints and operate outside the scope of their original mission. It is our hope this acquisition will raise a red flag with Rep. Steil whose constituents subsidize credit unions’ competitive advantage that will ultimately leave them with fewer choices for financial products and services. It is time for these growth-oriented credit unions to be paying their fair share of taxes!

On January 11, 2021, NCUA issued a proposed rule to expand the field of membership for multiple common bond credit unions. WBA filed comments on February 10, 2021, in opposition to this expansion.  

The proposal would modify the definition of service facility for select groups and underserved areas to include any shared branch, shared ATM, or shared electronic facility regardless of whether the credit union is an owner of the shared branch network. In addition, the proposal would erase the distinction between service to select groups and service to underserved areas as delineated in the Act. 

WBA commented that the proposal is another example of NCUA fueling the growth of the credit union industry, which undermines congressional intent to demand a heightened standard of in-person service for underserved communities. Further, WBA expressed concern that the proposal encourages abandonment of credit unions’ statutorily mandated physical presence and common bond requirements, which destroys the nexus between the credit union charter and the federally subsidized mission to provide financial services to underserved communities and people of modest means. 

WBA recommended that NCUA withdraw the proposal in its entirety. 

Click here to view the letter.

By, Ally Bates

If you close your eyes and think about all the issues bankers have lobbied for over the decades, and focus on the one that resurfaces each year, credit union taxation should immediately pop into your mind. Over the years, the credit union industry has consolidated at a pace faster than that of the banking industry, resulting in fewer institutions but, without question, larger ones. Of the top 20 financial institutions headquartered in Wisconsin, 11 are credit unions with the largest one, Landmark Credit Union, ranked #3 at over $5 billion in assets. 

While bankers have consistently asked for taxation of credit unions, we have raised many other regulatory and legislative issues over the years with some success. Just as routinely, credit unions have lobbied Congress and NCUA for expanded powers with some success as well. Most recently, during our Capitol Day legislative meetings, bankers raised the public policy concern over non-tax paying institutions acquiring assets either through branch acquisition or whole bank acquisition of taxpaying institutions. The permanent loss of revenue this presents for government should be a growing concern. 

Given the need for government at the local, state, and federal level to search for more diverse revenue sources, the WBA Board asked staff earlier this year to form a Credit Union Task Force of bankers to research and suggest a strategy to help move us closer to the goal of credit union fairness. The group met Monday afternoon to continue its brainstorming and discussions from its first meeting in February. A representative from both ICBA and ABA also shared their organization’s respective activities this last year and ideas heading into 2021. 

The work of the task force will wrap up later this Fall and will likely consist of, among other ideas, three tangible action steps for the Government Relations Committee and WBA Board to consider for 2021. It is very clear that the large credit unions are not what they seem, and WBA, with the help of our members, is ready to execute on an active strategy. 

Members of the WBA task force include: Charlie Schmalz, East Wisconsin Savings Bank, Kaukauna; Ryan Kamphuis, Bristol Morgan Bank, Oakfield; Ed Schaefer, First Federal Bank of Wisconsin, Altoona; Jimmy Kauffman, Bank of Sun Prairie; Jay McKenna, North Shore Bank, Brookfield ; Dan Ravenscroft, Royal Bank, Elroy; Mike Gargaro, Coulee Bank, La Crosse; Gary Kuter, Capitol Bank, Madison; and Clark Yolitz, Dairy State Bank, Menomonie. 

I encourage you to contact me, or any member of the task force if you have questions or specific suggestions for us to consider as we finalize a strategy.

By, Ally Bates

Taking care of communities is what community banks do! Learn how First Bank of Baldwin stepped up to serve a community after it was abandoned by a credit union and left without a financial institution in the latest Rose on the Road!

By, Ally Bates