There has been a great fallacy permeating popular media over the last few years about the credit union movement and its growth through the acquisition of banks. Bank associations have pushed heavily on an inaccuracy (falsehood?) that their own institutional members are being “bought up by” <insert GASP! here> member-owned credit unions.
Following a moment for our faithful readers to gather themselves and find their collective breath. The factual truth is credit unions do not, and cannot, “buy banks.” Such mischaracterizations are false. A bank exists by way of a charter, and since it’s illegal for a credit union to purchase a bank’s charter, no credit union has ever actually “bought a bank.” Again, that would be illegal.
Therefore, while a credit union cannot buy a bank, it just so happens a bank can in fact choose to sell some or all of its assets and deposits to another bank or, yes, a credit union! This process marks a not insignificant difference (one bank trade associations would never volunteer) that the first move in the sale of a bank’s assets or deposits to a credit union must come from the bank, NOT the credit union.
So was the clarification laid out in an eight-page letter by Credit Union National Association (CUNA) President and CEO Jim Nussle to members of the Senate Banking Committee earlier this month when he asked the committee to dismiss factually inaccurate objections created by banking groups to banks who decided to sell their financial institutions or branches to credit unions.
Nussle clarified that banks are asking government regulators to establish restrictions on their own institutions’ fiduciary right to make decisions based on the best interests of the bank’s shareholders by selling to credit unions. The CUNA head’s comments on bank sales were just one area of many he addressed as he spoke to the Committee on Banking, Housing, and Urban Affairs on its hearing concerning “Oversight of Regulators: Does Our Financial System Work for Everyone?”
Banks got their $6.2 trillion, credit unions got financial inclusion
Interesting insight, considering Nussle said sales to credit unions are more likely to benefit the banks’ communities than sales to banks, especially large entities. Firstly, the banks got what they wanted: From 2012 through 2020, banks collected $6.2 trillion on 39 sales to credit unions while receiving more than $2 trillion through more than 2,000 sales with other banks, according to the St. Louis Federal Reserve. Secondly, in roughly 80 percent of those deals, banks chose to sell to low-income credit unions where over half the members typically have incomes below 80 percent of the area median income; areas that remain in perpetual need of financial inclusion services like our automated QCash mobile life event loan platform.
Nussle quoted reports that found credit union members and bank customers said credit unions are “more customer-friendly, more trustworthy and an overall better value than banks.” A 2018 article in Consumer Reports stated that “Credit unions are among the highest-rated services we’ve ever evaluated, with 96 percent of our members highly satisfied…that satisfaction is driven by good customer service, not surprising when you consider that credit unions are owned and managed by their members.”
In addition, research from Gallup found that “credit unions have built strong member relationships by using a personal approach, thoughtful products and member-centric models to help members manage their finances.” The research noted that 46 percent of credit union members “strongly agree” with the prior statement while only 31 percent of bank customers felt the same.
“When a bank sells to a credit union, it is very likely that the bank facilities will continue to serve the community and that the credit union is one that has a particular focus on low-income individuals and families,” explained Nussle. “When a bank sells to a credit union, the community is the winner: A potential banking desert is prevented, and the community continues to receive locally provided financial services but now in the form of a member-owned credit union.”