Philadelphia Fed Report Rekindles Questions About Credit Unions

For decades, credit unions have occupied a unique and deliberately narrow place in the financial services ecosystem. Built around a common bond and a cooperative mission, they were designed to serve defined communities and populations of modest means. In exchange, Congress granted credit unions a federal tax exemption and a distinct regulatory framework.

New data from the Federal Reserve Bank of Philadelphia, however, underscores just how far today’s $2.4 trillion credit union industry has moved from those original roots, and why policymakers should take a fresh look at whether these longstanding, anachronistic carveouts still reflect economic reality.

As of 2025, credit unions serve 145 million members nationwide, nearly half of the U.S. population. While their total assets remain smaller than the banking sector as a whole, their footprint in key lending markets is anything but modest. Credit unions have become major players in auto lending, residential mortgages, and other core consumer finance products. At a certain point, policymakers must ask: when does a tax-exempt financial cooperative begin to function like a full-service commercial bank, without being subject to the same tax and regulatory obligations?

The Philadelphia Fed’s analysis of the Third Federal Reserve District, which covers Delaware, New Jersey, and Pennsylvania, is particularly revealing. Over the past twenty years, inflation-adjusted credit union lending in the region grew by more than 120 percent, with assets rising nearly 90 percent. Over that same period, asset growth at banks lagged far behind, and small banks experienced a significant contraction. Importantly, this expansion has not been led by small, community-based credit unions, but by large institutions operating at an increasingly national scale. Loan composition further underscores how much credit union balance sheets now resemble those of community and regional banks. Nearly half of credit union loan portfolios in the region are tied to real estate, with another 40 percent devoted to consumer lending. Commercial lending is no longer incidental to credit unions’ business model. These portfolios look strikingly similar to those of taxable banks that face a very different set of regulatory, supervisory, and community reinvestment obligations, raising serious questions about whether the sector’s original mission to serve those of modest means is meaningfully reflected in its current activities.

These regional findings align with longer-term national trends. Federal Reserve data show that credit unions’ financial assets have steadily increased as a share of GDP over the past three decades, while their role in household lending has expanded significantly in both mortgages and consumer credit markets. This trajectory suggests that the sector’s transformation is structural rather than cyclical, and unlikely to subside without policy intervention.

Policy decisions over the past 25 years have helped drive this shift. The Credit Union Membership Access Act of 1998 and subsequent regulatory changes dramatically expanded credit unions’ fields of membership and lending authority. In doing so, policymakers blurred the once-clear lines between credit unions and banks without fully accounting for the long-term tradeoffs that historically justified differential tax and regulatory treatment.

As consolidation accelerates and the largest credit unions continue to grow across state lines, the traditional narrative of small, member-owned cooperatives becomes increasingly detached from reality. Today, scale now defines the sector with fewer than 11% of credit unions—those with more than $1 billion in assets—now holding nearly 4 out of every 5 dollars in the system and accounting for virtually all industry growth.

The data is clear. Modern credit unions are sophisticated, expansive, and deeply embedded in mainstream financial markets. Policymakers should embrace transparency and reassess whether credit union tax and regulatory exemptions have kept pace with the size, scope, and complexity of this evolving industry.