June 8, 2015

From The Saint Louis Business Journal

Banking Lawyer Sizes Up Competition from Credit Union

By Greg Edwards

Like banks, credit unions have closed and consolidated in recent years, from 7,966 in 2008 to 6,398 in 2014.

Meanwhile, they’ve been growing assets, loans and members.

From 2008 to 2014, total assets increased to $1.14 trillion from $826 billion. Total loans increased to $723 billion from $576 billion and total members rose to 101 million from 90 million, according to the National Credit Union Administration and Credit Union National Association.

As a lawyer who represents banks, Joe Porter, chairman of the banking and financial institutions practice at Polsinelli, keeps a wary eye on the competition.

He talked about the trends, what it means for banks and what the future holds for the two moving forward.

What is driving the growth at credit unions?
They have been able to expand their field of eligible members. The definition of who can be a member is expanding. The banks aren’t happy about it, but credit unions also want to expand their products and services.

What hurdles do credit unions face? If credit unions are going to continue to expand their growth they need to expand products and services and do more business lending. To make more money, they need to lend more money out, and currently there are caps on credit union lending. There is pending legislation that would lessen restrictions on business lending by credit unions.

Is growth sustainable?
It will depend on whether they win approval to expand.

Do banks feel threatened?
Community banks in particular feel pressured. It’s an unlevel playing field because credit unions have a federal income tax exemption. However, banks have more experience in commercial lending, and they have a head start, especially in technology.

Banks have been lobbying Congress to tax the credit unions the same way they are taxed. Is that likely? I don’t know. My client banks believe it is something worth fighting for and possible to pass. As long as it is possible, they need to be organized and vocal.

What else are banks doing? They must maintain the advantage in technology. Bankers believe technology, while costly, is the future.

How do you see the competition playing out?
In the next 10 years, it will be a continuing fight over legislation. The result will have a significant impact on what happens in the industry. I can’t tell which side will come out on top.

View the article here.