Mark Primeau: Credit unions should not receive special treatment
NEW HAMPSHIRE banks have been serving the businesses and families of the state for more than 180 years. They have been the backbone of our economic growth, helping to build new homes, provide financing for businesses, supporting capital investment and generating jobs. Without local banks, our economy would not be nearly as dynamic as it is today.
Credit unions were initially established to service the underserved populations that traditional banks were not supporting. As part of the substantial advantages provided to credit unions by the government, they were restricted to working for members who were affiliated with the organization, defined as those who had a "common bond" and to serve those of "limited means." In return, they were provided exemptions from taxes and later were carved out from some of the onerous regulations that banks are required to follow.
Recently, a study was conducted to compare how well New Hampshire credit unions and banks were supporting the underserved markets of the state. The results may have been surprising to some, but to those who understand the commitment that banks have to our state, it was no surprise at all. The bottom line was that despite the competitive advantages provided to credit unions by the government, it is the banks that are more active in New Hampshire's low income communities. The report states:
"Only 15 percent of the 93 in-state branches of New Hampshire credit unions serve the state's less wealthy counties, while 44 percent of 154 New Hampshire community bank branches serve New Hampshire's least wealthy counties."
Despite the fact that credit unions are competing with banks on an unfair playing field, instead of working harder to support the state's less wealthy communities, they have been using their government support to grow their profits, expand beyond their affiliation base and pay their executives generous salaries. While credit unions have espoused their penny pinching ways, some of them have built lavish new headquarters and pay their executives millions of dollars a year in compensation. In fact, the largest credit union in the state paid its CEO over $2.3 million in 2012, and operates from a headquarters valued at over $27 million. Does this sound like a business that needs a tax exemption?
According to the study, credit unions are using their taxpayer-supported profit margins to further grow their organizations in middle and high income communities, rather than returning these profits to their members. Credit Unions in New Hampshire now control 18 percent of the deposits held by financial institutions in the state. Community banks are now down to 27 percent; however, for credit unions, that is not enough. They are now pushing elected officials to raise their lending limits for commercial lending.
More and more the question is being asked as to why banks are doing the job that credit unions are supposed to do even though the government provides credit unions with a huge tax exemption, lax regulatory oversight, and no mandate to support low income communities.
Recently a credit union executive commented:
"If banks believe credit unions, like Service Credit Union, have special benefits, then the banks should join our ranks and convert to credit unions."
This argument is self-serving on its face and its implication is one of which all citizens should be wary. The logical conclusion of what is stated is that all our local financial institutions should become wards of the state like credit unions and avoid any obligation to pay a corporate income tax. This means that, because of the tax exemptions, tens of millions of dollars from banks that go to support our state and local governments will no longer be available. By following the credit union model today, more and more of the less "profitable" communities in the state would no longer be served.
To the contrary, credit unions should become more like New Hampshire's banks. They should no longer have special government dispensations that allow them to be exempt from taxes. They should be better regulated and fall under the same government mandates that require banks to serve lower income communities.
New Hampshire's banks are vital institutions in our state. The hundreds of board members that oversee our banks helped build our communities, serve our citizens and give back to our state. If we continue to allow an uneven playing field and expand government benefits provided to credit unions at the expense of our New Hampshire banks, then we will have failed the communities of our great state.
Mark Primeau is chairman of the New Hampshire Bankers Association and president of Bank of New Hampshire.