States Push Back on Credit Union Bank Buys

“Everything is bigger in Texas.” As of last month, that extends to credit union (CU) acquisitions of banks too.  

The Houston-area Texas Dow Employees Credit Union (TDECU), a $4.7 billion financial institution that has spent tens of millions of dollars on stadium naming rights and doubled in size over the last decade, announced its intent to acquire a $1.2 billion Louisiana bank. The bank “specializes in commercial loans,” reflecting a broader trend in CU acquisition targets, and will expand TDECU’s geographic presence throughout Louisiana and Texas.  

With 11 credit union bank acquisitions announced so far this year nationwide, this is the second deal involving a bank with more than $1 billion in assets. Notably, the average assets of the eight other institutions is $525 million, less than half the size of the Louisiana bank being acquired by TDECU. 

As this trend grows—CU acquisitions of banks have made up 27.3% of bank deals announced this year, the largest share yet—and spreads to more states, it calls for heightened scrutiny from policymakers.  

While the National Credit Union Administration contends that “the Federal Credit Union Act explicitly permits these transactions,” the attorney who concocted this “new option for credit unions to achieve rapid growth” recently revealed their shaky legal underpinning: “I looked and nothing said that we couldn’t, nothing said we could, and it was gray. And I said, well then of course we can.”  

The opacity shrouding CU bank buys merits further consideration given the potential ramifications for bank customers, credit union members, and the communities where these depository institutions operate. Local jurisdictions lose Community Reinvestment Act (CRA) and tax dollars when credit unions purchase banks and without a membership vote, credit union members have no say in their monies being spent on banks. As these tie-ups increase in number and volume, more public officials should direct their attention to these issues. 

To address this ambiguity, state regulators in Colorado, Iowa, Minnesota, and Nebraska have clarified that credit unions do not have the authority to acquire banks under state law. The South Carolina Board of Financial Institutions also issued an advisory opinion concluding that state-chartered banks cannot sell their assets and liabilities to non-bank entities. 

Likewise, the Tennessee Department of Financial Institutions blocked a proposal from a credit union seeking to buy a bank in 2021. After the Court of Appeals of Tennessee overruled that decision earlier this year, Governor Bill Lee signed legislation championed by the Tennessee Bankers Association clarifying that only FDIC-insured entities may acquire state-chartered banks. Mississippi enacted similar legislation in 2022. 

And although the Colorado State Banking Board had previously ruled against such an agreement, language allowing credit unions to acquire banks was recently included in banking legislation. Ultimately, that provision was removed from the bill after concerns were raised by Colorado banking groups.  

In addition to Texas, New York saw its first bank acquisition announcement from a multibillion-dollar credit union in January. The New York Bankers Association and Independent Bankers Association of New York State urged the New York Department of Financial Services to “pause” the transaction: “We believe this acquisition warrants careful and transparent consideration and scrutiny due to recent significant shifts within the credit union industry, particularly their unchecked expansion and continued exemption from most taxes and the Community Reinvestment Act.” 

As not-for-profit cooperatives owned and operated by their members, credit unions were chartered to serve low- and moderate-income individuals linked by some common bond in a local community. In 1955, Dow employees formed the Texas Dow Employees Credit Union to fulfill that mission. 

Today, all 30 million Texans are eligible to join TDECU. In the press release announcing its bank buy, TDECU President and CEO Issac Johnson proclaimed that the credit union “is on a growth journey to expand across the state of Texas and beyond.” Indeed, its field of membership will reach into a neighboring state of 4.6 million once the transaction is complete. 

With a price tag likely set at hundreds of millions, the lack of transparency around credit unions’ bank acquisitions is alarming. The fact that credit unions are not subject to reporting requirements under the CRA raises real questions about the impact of this deal on local communities. 

How would existing credit union member-owners benefit from this deal? And how do these deals align with the credit union nonprofit mission of service to a well-defined group of individuals connected through a common bond in a local area?

Policymakers ought to find out. 

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