In: Finance
TCO G) The American Bankers Association and others are seeking to limit growth of credit unions. What is the basis for the bankers' concern? What does the credit union industry argue? What kind of limits on credit unions are the bankers seeking?
The bankers are arguing that credit unions can unfairly compete with banks for consumer loans and deposits because credit unions are not taxed. The banking industry estimates the tax advantage to be worth about $1 billion per year. The credit union industry claims that the advantage to members is between $200 and $500 per member per year. With over 90 million members, this works out to be quite a bit larger than the cost of the tax advantage. The common bond requirement is designed to limit competition among credit unions (each other) and between banks and credit unions. Historically, credit union members were sponsored primarily by an employer, and most people could not participate in a credit union. The weakening of the common bond requirement and the growth of credit unions have brought this industry into more direct competition with banks for consumer banking services. Banks are seeking to limit growth of credit unions by limiting credit unions' ability to accept new members and to limit the number of community based credit unions. Community based credit unions represent the greatest threat to banks because their "common bond" is very broad, namely to live and/or work in a given community.