Letter to NH House of Representatives regarding Banker Attacks

March 25, 2014


Chairman Edward Butler
Commerce and Consumer Affairs
Room 302
Legislative Office Building
Concord, NH  03301

Dear Chairman Butler:

On behalf of the New Hampshire credit union community, please accept this letter in response to a recent study released by the New Hampshire Bankers Association entitled “How Public Policies are Changing the Competitive Market for Banking Services in New Hampshire (“NHBA Study”).”  As you know, the New Hampshire Credit Union League (“League”) is the state credit union trade association serving 19 state and federally-chartered credit unions owned by over 545,000 consumers as members, and operating as part of the Credit Union National Association (CUNA).  

First and foremost, we strongly disagree with the assertions and conclusions contained in the NHBA Study. The irony of the NH banking industry, which controls the lion’s share of all NH deposits, complaining about unfair competition and an unlevel playing field should not be lost on anyone.  The perceived threat is unfounded.  Would New Hampshire be a better place if banks controlled an even greater market share?  The banks’ argument that credit unions’ tax status creates an unlevel playing field has been the same tired one they have used for years. The fact is that Congress has reviewed the credit union exemption time and time again and each time they find the exemption to be appropriate given the benefits that members receive and the overall benefit to all consumers. New Hampshire credit unions, both individually and collectively, comprise approximately 15% of total market share based on deposits of financial institutions.  In contrast, the banking industry represents approximately 85% of the total market share of deposits of financial institutions. According to deposit data contained in the NHBA Study itself, credit union deposit market share has grown by less than three percent over the past decade. Considering that the tax exemption has been in place since 1934, one would expect that if the assertions of unfairness by the NHBA were real, credit unions would by now have eclipsed the banks in terms of market share. The truth is that credit union market share has not changed dramatically in decades, despite shifts in the financial services landscape and economic cycles.  Credit unions remain a small but very important presence in the local marketplace.  In fact, the U.S. General Accounting Office, in a 2011 study of how the banking and thrift industries have benefited from tax breaks, noted that bank profitability has not been adversely affected by competition from credit unions.

Further evidence of the lack of threat to market share and profitability comes from the market place itself where out-of-state banks continue to grow market share in New Hampshire.   While credit unions remain local, out-of-state banks are garnering more market share in New Hampshire through mergers with smaller banks. Out-of-state banks control 56% of deposits in the state, a share that has increased by 12% over the past two decades. Within the past week we learned that the Camden National Bank of Maine will be opening a commercial lending branch in Manchester in the near future. Surely this demonstrates that credit unions present little threat to competition and that New Hampshire remains an attractive market for banking and out-of-state banks.

The NHBA Study asserts that the tax exemption is no longer justified. Not so. Since the time it was granted by Congress in 1934 when federal credit unions were created, the exemption has been and continues to be revisited, debated and upheld on a regular basis. It was deliberated, reviewed and affirmed by statute in 1951, and reaffirmed in 1998 in H.R. 1151, The Credit Union Membership Access Act, which stated “credit unions, unlike many other participants in the financial services market, are exempt from federal and most state taxes because credit unions are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.” The need for the special brand of service credit unions provide continues to this day. Credit unions in New Hampshire continue to serve the working families that they were chartered to help.  Credit union branches are strategically located to best serve members based on population and accessibility. Credit unions are also good corporate citizens.  New Hampshire credit unions have continued to support the credit needs of their communities during the country's economic crisis as evidenced by the significant mortgage loan modifications made totaling over $11 million last year alone. During the economic crisis, credit unions continued to lend and did not alter their underwriting policies as many other financial institutions did to fit the highest credit applicants.  New Hampshire credit unions have one of the highest loan growth percentages in the country at 10.39%.  They are responsible lenders as evident by having the lowest delinquency rate in the nation of just 0.56%. 

Results can also be measured by financial benefits.  As not-for-profit financial cooperatives, New Hampshire credit unions provided families approximately $65 million in direct financial benefits, measured by better rates on loans and deposit products, due to their competitive presence in the marketplace last year.  Any “profits” made were returned to members either as dividends or as new products and services.  With respect to dividends alone, credit unions paid an additional $31 million to benefit members last year.  Due to the popularity of credit unions, approximately 1 in 3 consumers are credit union members in the Granite State and received these dividends and, in turn, paid taxes on them.

As key economic contributors in their communities, New Hampshire credit unions employed over 1,726 employees and paid over $105 million in wages to those working families last year. The average share balance at New Hampshire credit unions is $9,017 and the average loan balance is $14,449, both of which underscore the fact that credit unions remain true to their mission.

It is important to remember that New Hampshire credit unions cannot operate like a bank.  Regardless of size, common bond or product line, credit unions do not possess powers equivalent to banks, such as flexibility to expand markets and customer bases, access to additional capital or mutual holding company authorities, and credit unions have an 12.25% cap on business lending. In addition, credit unions may not be chartered in or convert to a stock form of ownership.  They cannot be bought or sold.  When the limits on credit union powers are viewed together with other credit union rules, credit unions are often more heavily regulated than banks. Credit unions constitute a parallel financial services system that provides a healthy level of consumer choice in the financial services industry. Credit unions do not receive a tax subsidy by virtue of the tax-exempt status.  The direct and indirect financial benefits that credit unions annually provide to consumers, in New Hampshire and across the country, total approximately $7-8 billion. This far outweighs any prospective increase in federal income tax revenue, estimated at approximately $500 million by the Congressional Joint Committee on Taxation as of 2012.

In conclusion, the alternative banking system that credit unions offer consumers is every bit as valuable today as it was 106 years ago, and the tax exemption remains an integral part of that system.  It is the position of the League that credit unions, consistent with their founding principles continue to serve a key role for New Hampshire consumers by helping to keep financial services accessible and affordable.  On behalf of all our members, I sincerely appreciate your time and thoughtful consideration.  Thank you.


Paul C. Gentile



cc: House Commerce Committee members