Credit unions have largely gone rogue. These taxpayer-subsidized institutions—originally established to offer loans to lower-income people in their own backyards—have morphed into financial behemoths. They have expanded well beyond their home states, enriching their top executives by selling complex investment products, all while underserving the lending needs of Missouri’s most vulnerable citizens.
Missourians who rely on credit unions are suffering the consequences of this money grab. While banks continue to perform the heavy lifting of extending credit to lower-income borrowers, credit unions are increasingly tilting their offerings to their wealthiest customers. While nearly a quarter of bank customers are low-income individuals and families, only 14 percent of credit union customers are, according to a report from the Government Accountability Office.
This situation demands Congress reevaluate whether taxpayers should continue to subsidize these increasingly large, complex financial institutions. Take First Community, Missouri’s largest credit union. This institution now has approximately $4 billion in assets. It also owns a subsidiary called Investment Services at First Community. The subsidiary earns revenue from a major wealth management firm by referring members to their financial professionals for trading and investment advice. This arrangement arguably benefits First Community’s executives—especially since they do not have to disclose their compensation—but how it advances the credit union’s mission of expanding credit to those who need it most, is less clear.
Or consider Together Credit Union, based in St. Louis with approximately $2.5 billion in assets. It offers memberships to people over hundreds of miles away in states such as Illinois, Virginia, and Texas. Their reach into states hundreds and even thousands of miles away is certainly a deviation from Congress’s intended goal of unlocking capital for local communities.
Congress did not envisage this situation for credit unions when it passed the Federal Credit Union Act of 1934. That law, passed amid the Great Depression, established community lenders to help fill a critical need for rural Americans suffering through that economic crisis. At the time, credit unions were created to assist people of small or “modest means” who exhibited a “common bond” through an organization or community. To facilitate this public-spirited mission, Congress gave credit unions a federal income tax exemption.
Fast-forward to the present, and credit unions still enjoy their tax-exempt status even as they continue to grow into massive financial complexes that bear little resemblance to the community lenders of the last century. To accelerate this expansion, these institutions are exploiting legal and regulatory loopholes, including using subsidiaries to serve customers well beyond their membership.
Lending laws and regulations are aiding credit unions in their efforts to shirk their founding mission. An example is the 1977 Community Reinvestment Act, which requires banks to adhere to strict standards guaranteeing they lend to lower-income communities. Under this law, a bank that fails to lend to the most vulnerable populations in its community faces harsh consequences, including limits on expanding or acquiring other banks. But credit unions face no such obligations, even as they abuse their tax-exempt status and flout requirements to file critical disclosures about their operations and finances with the IRS. Opaque credit unions are grifting taxpayers with their tax status, while at the same time, not adequately servicing lower income communities.
Taxpayers continue to fund this industry, which is limiting credit to the low-income communities it is supposed to serve, while at the same time competing against private-sector employers operating under a much tougher set of rules.
This status quo is untenable, and Missouri lawmakers should intervene. They should first investigate why a Missouri-based credit union is providing services to individuals outside of the state and whether that is in line with current laws and regulations. Lawmakers should also scrutinize legal loopholes allowing credit unions to use their subsidiaries to skirt the law and crack down on both their noncompliance with the Community Reinvestment Act and their failure to file federal disclosures required of other nonprofits. Finally, and most importantly, Congress should reexamine credit unions’ tax-exempt status.
Taxpayers in the Show-Me State should not be subsidizing opaque, large financial institutions that are being allowed to circumvent their legal obligation to serve lower income communities.
