The long-simmering feud between North Carolina banks and credit unions is heating up as state lawmakers debate the merits of rewriting the state law that governs how North Carolina’s credit unions operate.
House Bill 410 is pending in the House Banking committee with backing from the Carolinas Credit Union League trade association. Its sponsors include House Majority Leader John Bell, R-Wayne. A hearing is scheduled for April 20.
The credit union league says that the bill is a necessary modernization of a law that dates from the 1970s. It emphasizes the opportunity for credit unions to fill the “financial services deserts” left by closure of more than 600 traditional-bank branches around the state. “Banks, which are profit- and shareholder-driven, have withdrawn from rural areas” that don’t have the wealth and growth potential of urban areas, says Dan Schline, the league’s CEO.
Critics say the bill’s focus on rural empowerment is a smokescreen for making it easier for credit unions to offer more products and for people to join. Banks contend credit unions have an unfair advantage because they don’t pay corporate income tax.
Credit unions are not-for-profit, member-owned institutions. Many of the larger ones offer the same products and services and use similar lending and investment strategies as for-profit commercial banks.
The state has 31 state-chartered credit unions, most of which are very small. The exception is Raleigh-based State Employees’ Credit Union, the $50 billion institution that is the second-largest U.S. credit union. It already operates offices in 100 N.C. counties.
The state’s credit unions wish to continue their 100-plus year history of “offering financial services to rural and underserved communities that have seen people and capital shift to wealthier population centers,” says Schline.
The N.C. Bankers Association has called out the bill as one of three pending this session that it sees as having “numerous issues” that require fixing. The group has opposed loosening restrictions on credit-union membership or broadening their lending authority.
The bill would widen the potential membership of credit unions by saying they can admit “individuals and families that earn income at or below the federal poverty” line, “women-owned or minority-owned businesses” and anyone living in “underserved areas” as defined by the Federal Credit Union Act. Otherwise, it aligns with existing rules that require credit union members to be part of a specific group, typically an institution, town or interest group, Schline says
The bill also adds to the list of permissible credit-union investments, saying they can put money in “stocks, securities, obligations or other instruments” that are approved by regulators. It also allows them to offer services such as electronic funds transfers and safe deposit boxes.
Former State Employees Credit Union CEO Jim Blaine contends the bill undermines the “original credit union principles” that have governed the industry. “The underlying intent is to allow North Carolina credit unions to have unlimited membership, expand and invest outside of North Carolina, and increasingly limit the local control of North Carolinians of their member-owned cooperatives,” Blaine said in an April 5 letter to N.C. Rep Frank Sossamon, a Vance County Republican. He is Blaine’s local representative.
In his letter, Blaine says provisions expanding membership to underserved communities amount to “putting lipstick on a pig” to mask the potential drawback of objectionable items. He believes the bill’s language will enable credit unions to offer membership to corporations and permit business and personal lending throughout the world.
Credit union officials have negotiated these issues for a year with the N.C. Bankers Association at the request of bill sponsors, Schline says. “Many of the items the banks are now complaining about publicly were never brought up during those negotiations.”
State Treasurer Dale Folwell, who chairs the State Banking Commission, says he constantly promotes the importance of brick-and-mortar offices to serve rural communities. It’s a critical service for local businesses in addition to individuals, including those who don’t have regular checking or deposit accounts, he says. He urges credit union and bank leaders to clearly agree on the intent of the new bill.
Credit unions operated 146 offices in 2022 in North Carolina’s 40 least economically viable counties, an increase of nine since 2011, according to federal regulatory data. In contrast, the number of bank branches declined by 35% to 433 in those same counties. (The 2011 count was 666.)
“It is decidedly not in a profit-seeking organization’s interest to maintain branches in lower-wealth, lower-density parts of the state,” Schline says. “Banks would probably be foolish to do so.”
Bankers say their branch strategies are tied to many factors, including increasing consumer and business preferences for online service.
Folwell says the pending split of the Local Government Federal Credit Union from SECU is an important part of the debate. Raleigh-based Local Government was formed 40 years ago through an agreement with SECU and has $3.8 billion in assets and 400,000 members. Now it is changing to a model that isn’t expected to include physical branches because it can offer better service through online and other channels, President Dwayne Naylor has said.
Local Government members use SECU’s 270-plus branches, but starting next March, they won’t be able to do so without paying additional fees. The move will save Local Government more than $40 million annually that has been paid to SECU.