For Profit, Not People? At Four Large Minnesota Credit Unions … You Betcha

According to American Banker, four Minnesota credit unions are banding together to create a credit union service organization (CUSO) that would allow the multibillion-dollar financial institutions to make commercial business loans up to $50 million – ten times more than what they’re currently able to do on their own.  $50 million business loans are substantial – the sheer size indicates underwriting big business and large real estate development projects, not mom-and-pop small businesses. If so, remind us why credit unions don’t pay federal income taxes?

American Banker reports: “Affinity Plus Federal Credit Union in Saint Paul, Spire Credit Union in Falcon Heights, Hiway Credit Union in Saint Paul and TopLine Federal Credit Union in Maple Grove recently created United Financials Capital, a credit union service organization focused on commercial lending.”

The growing demand for business loans drove the large credit unions to join forces, explained the new CUSO’s CEO Michael Dalglish.

“Before we would have had to say, ‘no it’s too big,’” he told American Banker.

But now it’s time to open the spigots. He added: “Now we don’t have to say ‘no’ to our members anymore.”

So, it’s all about serving members? Which ones?  Condo developers?  This does not pass the smell test and is just another attempt by large credit unions to bend the rules and use the enormous profits generated by their tax-exempt status to generate … well, more enormous profits.

As we previously reported at Reform Credit Unions, traditional CUSOs, which are owned at least in part by credit unions, are third-party vendors that often offer financial products, such as mortgages and other consumer loans. While they are not themselves credit unions, they need not adhere to the industry’s “common bonds,” such as field of membership. This allows them to grow their business on taxpayers’ shoulders.  And, NCUA has no supervisory authority over CUSOs, so the loans they make are free of prudential protections and examinations for consumer protection compliance.

Even NCUA has signaled CUSOs are risky business.  The NCUA has previously noted that CUSOs nearly brought down the credit union system with risky lending, inadequate capital, and lax oversight during the 2008 financial meltdown: “CUSOs have caused credit unions more than $300 million in direct losses and led to failures of credit unions with combined assets of more than $2 billion.”

Some questions:

  • Will profits from the multimillion-dollar business loans be used to provide financial services to low- and moderate-income communities, as credit unions are supposedly bound by their mission to do?
  • Will membership requirements for the four credit unions be upheld or can anyone “join”? (We ask because of the increasingly loose-to-nonexistent membership requirements at some large credit unions. A membership in the $2.1 billion Affinity Plus Federal Credit Union can be had with a $25 dollar “donation” to its foundation.)
  • Will D.C. lawmakers and the NCUA stand up and take notice that, yet again, large credit unions are revving up their profits by skirting the restrictions Congress placed on them in the Federal Credit Union Act?

If large credit unions are allowed to continue this path – not to mention their nationwide bank-buying spree – where does it end? Washington needs to step up and step in. Regulate these credit unions as the banks they truly are. Make them pay their fair share. Enough is enough.


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