The Booming Business Behind Credit Union Bank-Buying Deals

It’s not just credit unions that are making a pile from buying banks. As it turns out, there is a cottage industry of consultants and advisors behind these deals, which are fueled by credit unions’ federal tax exemption.

One such advisor recently sent a rather braggadocious mass email promoting a transaction they helped facilitate, a Florida bank selling itself to DFCU Financial – a nearly $6.5 billion credit union based in Michigan.  The email noted that the price DFCU was paying was more than two times the book value of the bank, a remarkably large premium for which taxpayers are paying.  When the deal officially closes, the combined entity will have $7.1 billion in assets and 33 branches in Michigan and Florida.

What kind of “common bond” could folks in Michigan have with people in Florida? The same employer? An affiliation with a particular university or municipality? Perhaps a shared common bond for supporting an organization open to all, such as the American Consumer Council? (This is a common loophole credit unions take advantage of in order to unjustly expand their field of membership – anyone can join ACC for $8.)  This was not made clear by the marketing from this particular consultant.

What was clear, however, is that this consultant is very proud of their track record selling banks to credit unions, noting that the transaction is their thirteenth bank sale to a credit union and that they have worked on 10 of the last 12 deals in Florida. And their work doesn’t stop there. They have advised on credit union bank buys in Wisconsin, Georgia, Illinois, Iowa, and elsewhere.

Reflecting the new ethos of the nation’s largest credit unions, the managing principal of this firm gave away the game in an interview following another recent transaction:

“Bankers historically have hated credit unions and thought they would never sell to a credit union … But at the end of the day … a credit union’s cash is just as green as a bank’s cash.”

Well, not exactly. The enormous profits credit unions are racking up come directly from their not-for-profit tax status. Coupled with large credit unions’ relentless moves to flout the so-called “field of membership” rules that are the cornerstone of that tax status, firms like this are making a king’s ransom off deal fees – all while taxpayers across the country see tax-paying community banks leaving tax rolls and transforming into credit unions. That means fewer dollars for schools, roads, law enforcement and other local needs.

Lawmakers and regulators should take a much tougher look at credit union deal-making to ensure the transactions abide by the letter and spirit of the Federal Credit Union Act. It’s time for reform.

See the impact on taxes in your state.

Tell Congress: It’s time to reform credit unions.