2024 has seen a record number of credit unions purchasing banks. Per S&P Global, credit unions had acquired $7.2 billion of bank assets. Credit unions are utilizing their tax-free status and exploiting government loopholes to outbid other interested parties. Each time a credit union buys a bank, those tax dollars are gone; eroding state and federal tax bases and weakening remaining community banks who are the backbones of the communities they service.

However, this issue goes beyond just tax dollars. According to the National Credit Union Administration, as of the first quarter of 2024, credit unions are holding $160 billion in commercial loans, which is more than double what they held in 2019. According to a study published in the Journal of Financial Stability, buying banks strengthens credit unions’ abilities to grow commercial lending, however, it may also weaken the system as a whole by weakening credit unions’ net worth. Commercial loans are typically riskier than real estate or credit card loans.

The study indicates “business loans could be indicators correlated with more likely subsequent decreases in net worth through the larger increases in loan loss provisions related to underperforming and non-performing loans, and through the reduction of interest income associated to non-performing loans…business loans have an effect on future delinquency rates between two and three times higher than that of the other loans of the credit union.” Standards continue to relax and fields of membership continue to grow, which will continue to exacerbate this issue as credit unions persist in increasing commercial lending.

Another very large concern is that credit unions are not required to adhere to the Community Reinvestment Act (CRA), which requires lending and investing in low- to moderate-income neighborhoods and communities of underserved individuals.

The recent Navy Federal Credit Union scandal drives this point home. It reportedly approved 75% of white borrowers while rejecting more than half of Black applicants and turning down Latino applicants at a rate approaching 50%. Navy Federal CU should absolutely be called before Congress to explain why our service men and women, including veterans, were harmed by these lending practices. Had it been subject to the Community Reinvestment Act, which it and other credit unions oppose, this may have never happened.

In my home state of Arkansas, there are still many small rural towns that have bank branches but no credit union presence, directly speaking to banks’ commitment to serve all local communities and not just the most profitable areas of the state. Because of instances like this and other problems, some states are enacting state CRA laws for state-chartered credit unions.

According to polling conducted by Morning Consult, 68% of adults said credit union customers should have the same CRA protections that banks provide, while 54% said Congress should investigate whether the credit union tax exemption is still warranted.

Lastly, credit unions are hurting their own members by denying them dividends. Instead of returning profits to members, which is one of the “benefits” of being a credit union member, they are spending those profits on lavish buildings, executive compensation and marketing.

Northwest Federal Credit Union recently used tax-payer subsidized profits to ink a deal to secure the naming rights to the Washington Commanders stadium. It will pay $7.5 million a year for the naming rights to an NFL stadium, raising the question again of how a tax-exempt entity that is supposed to be serving low and modest means customers can afford such a whopping price tag. (Northwest CU was founded in 1947 to serve CIA employees)

Unlike other non-profit organizations, such as mine, some credit unions are also paying their board members and taking them on extravagant trips and retreats. These practices are again being subsidized by tax-paying citizens.

Unlike other non-profits, credit unions do not have to answer for these sorts of practices or prove to the IRS that they are staying on mission because they are exempt from filing a form 990. My small association with a budget of $1.6 million has to file a form 990 with the IRS that is over 40 pages long, but the $8 billion-dollar Northwest Federal CU submits nothing.

For these and a myriad of other reasons, credit unions should not be able to manipulate their tax-free status to buy banks. This harming of the financial system, their members, and the communities they live in can all be avoided. If credit unions are going to operate like banks in their product offerings, such as high-dollar commercial real estate loans, and acquisition strategies, they should be taxed and regulated like banks.