Credit union regulator to clarify bank acquisition rules

Dive Brief:

National Credit Union Administration (NCUA) Chairman Rodney Hood said the regulator will propose a rule clarifying credit unions' responsibilities when acquiring banks.
The not-for-profit financial institutions have acquired 21 U.S. banks since 2018, compared with 12 acquisitions in the prior five years, according to data from S&P Global Market Intelligence.
A leading trade group's report slams the practice, saying many tax-exempt credit unions are diverging from their mission to serve low-income households.

Dive Insight:

Credit unions should "make sure that they are acquiring a bank that comports with their existing field of membership and the lines of business they are operating in," Hood told The Wall Street Journal this week.

The American Bankers Association has called the acquisition spree "an example of how credit unions are pursuing aggressive growth opportunities while falling short of their statutory mission to serve households of small means."

But a June report commissioned by the trade group found credit union members are disproportionately from middle- and upper-income households.

The agency "maintains no data on credit unions' effectiveness at providing financial services to people of 'small means,'" the report said. Additionally, the agency's "definition of 'low-income' is far more expansive than that used by other federal agencies," according to the report.

The report, conducted with the help of Federal Financial Analytics, also concluded the NCUA's rulebook lacks a statutory mission required by Congress "as a condition for credit unions to enjoy numerous benefits and expanded powers."

ABA President and CEO Rob Nichols called the report a "wake-up call" to regulators and lawmakers.

"[T]his $1.5 trillion dollar industry no longer meets its statutory mission to serve low- and moderate-income households," Nichols said after the release of the report. "Instead, credit unions are increasingly using their tax advantage to expand membership with higher-income customers, make high-risk loans without adequate capital, and even buy up tax-paying community banks."

The trade group said that although it commissioned the report, it had no editorial control over its research and conclusions.

Industry analysts, however, said increased competition in the financial services sector is pushing credit unions to buy banks.

"There is a real desire by the larger credit unions to get even larger because they're recognizing that they're now competing with banks and money center banks head-to-head to get deposits," Peter Duffy, a managing director with Sandler O'Neill & Partners, told S&P Global Market Intelligence.

Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions, called the trend a strategic move by credit unions.

"Credit unions want the assets. They want the bank's customers, especially if it fits in the field of membership," he said. "They may want some branch locations."