Citadel FCU Redlining Settlement Proves It’s Time To Bring Credit Unions Under Community Reinvestment Act Enforcement

The recent U.S. Department of Justice (DOJ) law enforcement settlement with Citadel Federal Credit Union is excellent evidence why the Community Reinvestment Act’s (CRA) omission of credit unions from its rules is a mistake, according to the National Community Reinvestment Coalition (NCRC). Citadel FCU agreed to a $6.5 million settlement regarding its alleged discouragement of homebuyers in Black and Hispanic neighborhoods of Philadelphia from applying for mortgages and systematically declined to make mortgages in those neighborhoods. Citadel maintains its innocence in the settlement.

“It no longer makes sense to let credit unions out of the common-sense obligations that CRA puts on traditional banks. Citadel’s alleged conduct in the case it just paid $6.5 million to settle is a timely demonstration of the problem and the need to enhance fair lending protections for credit union customers. Despite their public perception as a gentler, kinder, more community-minded provider of retail banking services, credit unions are just as capable of violating borrowers’ civil rights as any other financial institution. Whatever the driving causes underlying such violations, we know how to fix the problem: Supervise credit unions under CRA so that they can prove their actual actions live up to their public image.”

Such failures and business practices are commonly uncovered in traditional banking through regular federal CRA examinations, which are conducted every few years. Extending CRA to cover credit unions would both improve oversight and put new capital into neglected communities as the firms move into compliance with the law’s requirements. Bringing credit unions under CRA would ensure that they face an affirmative and binding obligation to those same people and communities.

Read the October 15, 2024 NCRC article.

Credit Unions Exploit Federal Tax Exemption to Buy Tax-Paying Community Banks - Not Subject to Community Reinvestment Act requirements

Nonprofit credit unions are buying record numbers of for-profit banks. Until recently, a nonprofit couldn't own a for-profit, but tax changes in recent years have changed the dituation.

As the Independent Community Bankers of America (ICBA) recently wrote: "Credit unions are increasingly exploit their federal tax exemption to acquire tax-paying community banks, the need for policymakers to re-examine their tax status is urgent. Action is needed now to preserve community banks and the communities that depend on them, ensuring the continued vitality of the relationship-based banking sector that has supported Main Street America for generations.

Credit unions pay no tax to operate the same business that was taxable the day before once they acquire a bank. As public scrutiny of these inappropriate deals and the number of credit union purchases of taxpaying community banks have raced past record highs, policymakers must protect local communities by ending the credit union tax exemption,” Rainey said. As more than 20% of bank deals this year have been credit unions leveraging their tax exemption to purchase banks, the media is taking note: 

• Axios: Why credit unions are buying banks.

• American Banker: Credit unions extend bank-buying spree.

• Credit Union Today: Citing exec pay, sports deals, 'lavish' HQs, bank group tells Congress there are new reasons to revoke CU tax exemption.

• Op-ed: Confessions of a credit union executive turned community banker.

• Op-ed: Stop letting credit unions buy community banks."

As Axios recently concluded:  Credit unions have many advantages over banks. They pay less in taxes and don't need to deliver profits to shareholders.They also have less of a regulatory burden — they aren't subject to Community Reinvestment Act requirements, for instance, and their National Credit Union Share Insurance Fund is in healthier shape than the FDIC's Deposit Insurance Fund.

• Axios: Why credit unions are buying banks.

• American Banker: Credit unions extend bank-buying spree.

• Credit Union Today: Citing exec pay, sports deals, 'lavish' HQs, bank group tells Congress there are new reasons to revoke CU tax exemption.

• Op-ed: Confessions of a credit union executive turned community banker.

• Op-ed: Stop letting credit unions buy community banks."

   

  Read the August 19, 2024 ICBA article.