The financial services landscape is witnessing a shift as tax-exempt credit unions are aggressively acquiring taxpaying community banks. This trend, which has reached unprecedented levels in 2024, poses serious concerns for local economies and fair competition. With both the number of transactions and the value of assets involved soaring, it is not surprising that credit unions plan to introduce legislation in Colorado in 2025 to authorize the purchase of a bank by a credit union.

Banks are vital to the financial health of local economies, accounting for around 60% of small business loans under $1 million and 80% of agricultural loans. As credit unions gobble up these essential institutions, they displace key sources of credit, depriving local businesses and farmers of crucial funding. Furthermore, each acquisition expands the portion of the financial sector that is exempt from Community Reinvestment Act (CRA) requirements, which mandate that banks serve low- and moderate-income communities. Credit unions publicly oppose the mere idea of being subject to similar CRA requirement like banks while the director of the Consumer Financial Protection Bureau believes that credit unions should abide by the same CRA rules. 

What Is Driving the Trend for Credit Unions to Purchase Banks and Why the Push To Change the Laws in Colorado?

The primary driver behind this acquisition spree is the outdated federal tax exemption enjoyed by credit unions, a privilege that dates back to 1934. As credit unions expand, the regulatory environment for banks has become increasingly burdensome, contributing to a wave of consolidations. With over 7,000 pages of new regulations added since July 2023, banks find themselves at a disadvantage, hampering their ability to compete against tax-exempt credit unions.

The trend also introduces new risks to the stability of the U.S. financial system. The National Credit Union Administration (NCUA) currently lacks the authority to thoroughly examine the cybersecurity practices of third-party service providers used by credit unions. NCUA Chairman Todd Harper has described this regulatory gap as a “blind spot,” raising alarms that credit unions could become the “soft underbelly” of the broader financial system. As credit unions grow larger through acquisitions, their vulnerability to cyber threats increases, posing risks not just to themselves but to the entire financial ecosystem.

As CBA pushed back against the credit unions during the 2024 legislative session, Tennessee enacted legislation to prohibit the purchase of a bank by a credit union. The credit union association would want legislators to believe that 46 states allow the purchase of a bank by a credit union. This is blatantly misleading. Most states are, in fact, silent regarding the authorization of credit union-purchasing banks. Seven states, including Colorado, through statute, the courts or regulation, forbid the sale of a bank to a credit union.

We have a piecemeal solution to what is a federal problem. As much as we would hope for Congress to step up to address the systemic inequities created by the tax-exempt status and weak regulatory oversight of credit unions, there is little hope for Congressional action. The ABA and bankers continue to call for a credit union accountability hearing after the rampant discrimination was uncovered within Navy Federal Credit Union. There is little appetite in Congress to hold hearings even though credit unions have not been before Congress in decades. As you well know, banks are routinely called before Congress.

The surge in credit union acquisitions raises critical questions about the future of banking. If left unchecked, this trend would alter the banking landscape. The essence of banking — a model built on trust, personal relationships and commitment to local development — may be at risk of being lost in the shuffle. We cannot let that happen.

Unknowing taxpayers are helping fuel the acquisitions of banks by credit unions that threaten the financial health of local communities and distort fair competition in the banking sector. Our fight continues at the state and federal levels.