An Opportunity to Serve
By A. James Lavoie
I consider it an honor to conclude my 39-year banking career as the chair of the Massachusetts Bankers Association. I never imagined when I started at the Warren Five in Peabody in 1968 that I would be where I am today. I feel very fortunate to have worked with so many great bankers over the years and I look forward to my year working with all of you as your chairman. I thank you for your confidence while acknowledging the many important tasks at hand. The Massachusetts Bankers Association is highly respected in our industry because of the leadership provided by Dan Forte and Kevin Kiley, supported by a dedicated staff of professionals and committed volunteers, and I look forward to a productive year ahead.
As many of you know, there is an important bill pending in Washington – one that could, potentially, impact the future of our entire industry: the Credit Union Regulatory Improvement Act (CURIA) of 2005. Today it sits in the House of Representatives where its future could very well lie in our ability or inability to unite as an industry and let our voices be heard.
Why should you care about credit unions? Because many of you are directly competing with large, non-taxpaying, growth-focused credit unions. These credit unions are one of the most significant threats to community banks today because they enjoy a number of unfair advantages. Community banks, which support businesses, create jobs, and improve the quality of life for the localities they serve, are suffering from a not-so-level playing field.
As bankers, we are not opposed to small credit unions, and are not trying to put them out of business. As chief executive officer of a mutual bank, I can appreciate the common heritage and mission of credit unions and mutual banks, namely to provide outstanding service and value to a specific population for the benefit of a community. In fact, until 1951, mutual banks were also untaxed in recognition of such a mission. The decision that mutual banks, having expanded, should be taxed equally was justified – and the continued presence of mutual banks in the Massachusetts banking landscape proves that fears of destroying the industry were unfounded. Mutuality has survived and thrived as taxpaying organizations, and so can credit unions.
Historically, the basis for the credit union tax exemption was the common bond. This exemption was established by Congress to further the credit unions’ special mission – to serve a single workplace, community group, or people of modest means, particularly in underserved areas. They were originally permitted to offer deposit accounts and a limited range of personal credit products, and were frequently run by volunteers in donated space. The problem today is that a number of credit unions in Massachusetts and across the nation have outgrown their original scope and common bond.
These large credit unions operate almost exactly like banks, offering full lines of deposit and loan products to almost anyone who walks through the door. Many are pursuing aggressive expansionist policies beyond the populations and areas they were originally intended to serve, and employ expensive marketing campaigns and tactics, such as stadium naming rights, to drive traffic in new locations.Moreover, although they do pay real estate and sales taxes, they pay no other taxes and have no obligations under the Community Reinvestment Act to further their local communities. The emergence of bank-like credit unions is simply not in the public interest. A tax subsidy should not be paying for a shiny new headquarters or to put your name on a stadium.
In addition, research indicates that banks are doing a better job of serving people of modest means. The average credit union customer has an educated, upper-middle-class profile – hardly the type of person underserved by traditional financial institutions.
What can you do? Your opinion is important to your congressional and state representatives. They need to be made aware of the impact of credit unions on the district and state economy. If credit unions grow and remain untaxed, the tax base could be weakened as they gain market share. Charitable giving could suffer significantly if large credit unions expand and are not held to the same CRA standards as banks. Legislators are overwhelmed every year with requests. You need to help draw attention to CURIA and similar proposals to ensure that the potential costs of its passage are clear.
As an association, we can set an example for grass-roots, state-level action advocating for fair competition. We can ensure that banks are heard on this issue, from single-branch banks to multi-state financial institutions. Credit unions claim that only increased lending power will put them on equal footing with banks. In truth, why should they have equal footing if they don’t pay taxes? In addition, providing them that lending power (without equal taxation) will surely put many smaller banks out of business and place hundreds of jobs at larger institutions in jeopardy.
We need to let Congress and our state representatives know that we are in favor of fair competition. Fair competition is not only good for the consumer, but forms the basis of our society. They also need to know that we are not afraid of change. Being granted the right to sell insurance and investment services in branches was eagerly embraced by many association members, while the rise of Internet banks has provided new and significant challenges. Both changes have aided consumers with increased choice for a host of financial services products.
It is easy to be complacent in this struggle, and assume that the ABA, ACB, ICBA or the MBA will solve the problem for you. However, we need your help. There are many resources available to you. We at the Massachusetts Bankers Association are also planning a major initiative to educate the public, our legislators, and the media about large credit unions – look for more information on this soon. Finally, you can help by starting with your own employees. At Middlesex Savings Bank, our own Operation Credit Union – delivered via e-mail and our internal Web site – generated over 250 letters to Congress. Just by informing our own employees, we can impress upon influential people the importance of creating a level playing field in which organizations that operate as banks are regulated as banks.
I thank you again for the opportunity to serve as your chair this year, and look forward to working with you all on this and many other important issues in the year ahead. I welcome your comments and calls.
A. James Lavoie is chairman and CEO of Middlesex Savings Bank. He can be reached at: email@example.com or (508) 653-0300.