For the second time since 2023, North Carolina’s credit union trade association is trying to convince lawmakers to rewrite state law governing how the member-owned institutions operate.
Last month’s introduction of House Bill 187 has rekindled opposition from the North Carolina Bankers Association. Although short-titled “Credit Union Update,” the association’s CEO Peter Gwaltney says the legislation “completely changes the purpose of what a credit union is designed to do, which is to serve people of modest means who share a common bond.”
Support in the state House for nearly identical legislation didn’t carry over to the Senate last year. If enacted, the bill would “benefit those credit unions that want to operate like full-service banks, without paying corporate income taxes and franchise taxes like banks, or being subject to the similar examination and supervisory standards to banks,” Gwaltney says.
The Carolinas Credit Union League is pitching the legislation as a way to restore financial services to economically distressed communities vacated by traditional banks. It’s seeking looser requirements for people to join nonprofit credit unions, creating opportunities for expansion into underserved “banking deserts” and serving people living at or below the poverty line, according to Dan Schline, the league’s president.
“We’re trying to serve folks who may not fit into the for-profit banking model,” Schline says. “Banks are making branching decisions based on the fact that they’re for-profit institutions. But our credit unions are not-for-profit, so our members are our owners.”
Citing federal data, the league said more than 640 bank branches have closed statewide since 2013, with the most economically distressed Tier 1 counties losing almost four in 10 branches.
The Federal Reserve said a banking desert exists in a census tract without the presence of a bank branch or within a certain radius from its population center. For urban communities, the radius is two miles from population centers, while it’s five miles in suburban areas and 10 miles in rural areas.
Ten percent of census tracts in North Carolina were banking deserts last year while 6% could become a desert if a branch closes, according to the Fed. The deserts are 69% suburban, 22% urban and 8% rural. More than four in 10 of the tracts have limited access to broadband. Most residents are people of color in 22% of deserts and 30% of potential deserts.
Credit unions operate in all 100 N.C. counties, with branches in 29 banking deserts, according to the league. That includes the $53 billion State Employees’ Credit Union, which has an office in every county.
“The branch footprint for credit unions has grown over the last 10 years, and it remains pretty stable even in the Tier one counties,” Schline says, referring to the state’s designation for the most economically distressed counties.
The league says the enactment of the bill would enable it to serve more areas lacking convenient banking, even if online banking is an option. “Getting a mortgage loan can be a complicated transaction,” Schline said. “A lot of times folks want to sit in front of somebody and make that happen.”
The league’s support reflects the desire of credit unions to lower barriers to membership so they can gain new customers, according to the bankers association.
CEO Gwaltney said the statute, dating back to the 1970s, requires credit union members to share a common bond revolving around three categories. They are similar occupation, association or interest; residence within a neighborhood, community or rural district; or employment by a common employer.
As proposed, the legislation would change the membership requirement from a “common bond” to “common bonds,” effectively allowing the categories “to be stitched together,” Gwaltney says. “Practically everyone on the planet, for example, lives in a `community’ of some kind and so you quickly get to the point that anyone, anywhere in the world can be a member.”
Membership would also be open to “corporations owned or controlled primarily by eligible individuals,” said Gwaltney, quoting language in the bill. “An individual doesn’t even have to be a member of a credit union. If anyone can join, then any corporation worldwide can be a member.”
Credit unions are trying to create loopholes to boost their business, not modernize the law governing them, he says.
Income from loans arranged by nonprofit credit unions “doesn’t get taxed and does nothing to support our nation or state’s infrastructure or pay down government debt,” he says. “If you have ever paid one penny in income taxes during your lifetime, then you have paid more in income taxes than any of the credit unions that are now seeking to have completely open fields of membership and to leverage their tax exemption to compete unfairly.”
