Peter Schorsch
Last week, the Florida Bankers Association released a sheet of talking points aimed at coalescing opposition around Sen. Rene Garcia‘s legislative initiative – SB 1154 – that would allow credit unions to accept deposits from public sources.
The bankers’ document paints the member-owned cooperatives as avaricious money-changers feeding at the public trough, though the FBA’s own members – giants like Bank of America, SunTrust, Wells Fargo and J.P. Morgan Chase are represented on their board – currently profit massively off of deposits originating from taxpayers, partly owing to the exclusion of credit unions as an option for governments.
Let’s take a point-by-point look at the FBA’s arguments for stifling their credit union competitors:
- “Credit unions pay less in taxes than a family of four.” Essentially a technically-true canard in some cases, though it misrepresents the broader landscape. Of the more than 150 credit unions in the state of Florida, only 14 are over $1 billion in assets. Only 5 are “multi-billion dollars” in assets. But more important, regardless of size, credit unions remain member-owned, member-focused, and run by volunteer boards. Every member benefits by this structure, not just shareholders as it is in a profit-driven commercial bank.
- “Credit unions do not pay the same taxes banks pay.” Again, sure, but that is because credit unions are structured differently than banks. If banks want to forego their profits, have volunteer – not paid – boards of directors, and be required to have field of memberships, a cap on business lending, an inability to raise supplemental capital and all the other restraints of the credit union model, they too, could be exempted from certain taxes.
- “Tax Exempt entities should not collect tax dollars.” First, credit unions would not be “collecting” tax dollars, rather they would be offering an alternative depository institution for public offices. Second, by the FBA’s logic, the state of Florida should not be entered into the over 1,500 contracts with nonprofits that they currently do. Should “S” corporation banks, which have a pass-through tax structure and therefore the entity pays no corporate income taxes, be barred from participating in the qualified public depositories program as well?
- “Government should not further exasperate an uneven playing field.” If credit unions have it so easy by being not-for-profit, cooperatively-owned financial institutions, why has no bank in Florida decided to forego their profits and convert to a credit union? It’s because they want to be able to make unlimited business loans, open accounts with whomever they would like, and generally enjoy all the benefits of their own uneven playing field.
- “Credit unions have outgrown their intended purpose.” You might just as easily argue that banks have outgrown their own. Credit unions continue to serve their purpose, including promoting thrift and helping the underserved. For the FBA to say the average credit unions focuses on commercial loans rather than teachers and other middle-class workers strains incredulity, particularly because credit unions are capped at how much of their assets they are able to loan out in commercial loans: 12.25%. Further, the average credit union in Florida holds about $339 million in assets, much smaller than the average bank. Over half of credit union members nationally have annual incomes between $25,000 and $75,000. 49% of credit union branches are in Community Development Financial Institution investment areas, compared to 22% of bank branches.
- “The bills may cause capital to leave banks.” If a little competition from credit unions cause serious liquidity problems for banks, then why are we leveraging Florida’s future in unsound banks? Banks use this money to lend out into the community, and credit unions would do the same. There is no instability that would be caused, particularly because there is no requirement to move money. Allowing public bodies another option in seeking the best return on taxpayer deposits is a good idea and if it would truly cripple the banks, we’re in worse shape than we thought. Fortunately, they are simply crying wolf by advancing this notion.
- “Expanding credit union powers in Florida will hurt the state budget.” There are 25 states that specifically allow credit unions to accept public funds specifically and 33 that allow credit unions to become qualified public depositories. In none of these states has this ability hurt the state budget, caused banks to fail, or led to a budget crisis in a state Capitol. It might make a dent in the banks’ flush budgets, but not the state’s.
Credit unions are hardly a rent-seeking Goliath especially compared to the banks and most state lawmakers understand that, but the proof will be in the pudding as Garcia’s bill and its House companion bill, HB 907 by Reps. Bill Hager and Travis Cummings, move through the process.
FloridaPolitics.com hears the House bill might be taken up by Government Ops Appropriations next Tuesday, though no meeting packet has yet been released.
