As NC credit unions push for rule changes, banks push back

North Carolina's credit union laws haven't been rewritten in nearly 50 years. The move to do so this year has sparked a big fight.

Posted 6:54 p.m. Apr 17, 2023 — Updated 7:26 p.m. Apr 17, 2023

Travis Fain

, WRAL state government

A push to overhaul 50-year-old state laws governing credit unions in North Carolina promises a high-stakes, big-money fight between traditional banks and credit unions looking to expand.

House Bill 410 is the focal point of some long-simmering back-and-forth over just what a credit union should be and whether banks provide enough services to rural customers. The bill is scheduled for its first committee hearing Thursday, when changes to the current language likely will be unveiled.

Both sides have power players lined up for the fight. The bill started life as a wholesale, 80-page rewrite of credit union rules. Over the past year it shrunk to nine pages. Among other things, it would let credit unions serve more customers, and particularly low-income ones.

“There are some real problems that we’re trying to solve for the state of North Carolina,” said Dan Schline, president and chief executive of the Carolinas Credit Union League. “We’re putting forward ideas about how to serve low-income communities.”

The state Bankers Association says the credit unions are trying to pull a fast one with a complicated bill.

“We believe that the portrayal of this bill by its proponents is completely at odds with what the bill is actually engineered to do,” the association told lawmakers in a one-page memo on the bill. “Key terms are carefully left undefined, new powers are subtly added. ... This bill is bad for North Carolina.”

Credit unions are nonprofits that are co-owned by members who hold accounts there. The institutions benefit from significant state and federal tax exemptions, but they also face regulations that limit expansion. For example: the State Employees’ Credit Union — which had about $51 billion in assets, $47.1 billion in deposits and $29.7 billion in loans at the end of December — generally serves only state employees and their families.

SECU and other credit unions want to change that by expanding their “field of membership,” allowing them to serve more people. The bill would add several groups to the allowed field of membership, including people below the federal poverty line, women- and minority-owned businesses and people who live in poorer parts of the state, regardless of whether they have a traditional connection to a credit union.

“We’d like the opportunity to serve some of these folks and see where it takes us,” Schline said.

People in those categories “have been acutely impacted by the 600-plus bank branch closures that have occurred over the past 10 years,” according to the Credit Union League, which lobbies for credit unions in North and South Carolina. The group published a map of bank closures as part of a public relations offensive on the bill, arguing that banks are leaving “financial services deserts” by pulling back into cities, where there’s more money to be made.

“As not-for-profit cooperatives, credit unions have the right model to offer financial services to rural and underserved communities, but antiquated laws do not allow credit unions to do so,” the league says.

Banks say the credit unions want to have their cake and eat it too by keeping their tax breaks and nonprofit status but losing key rules that differentiate them from banks without picking up regulations that banks face. The NC Bankers Association told lawmakers that the bill grants credit unions “expansive new powers” with no requirement that customer deposits be used to make loans or investments in North Carolina and no promise that the credit unions will actually put branches in rural areas.

“H 410 would allow anyone and any business in the world to join an NC state-chartered credit union,” the association told lawmakers in a memo on the bill. “Does that still sound like a nonprofit serving people of modest means who share a common bond?”

The Credit Union League responded, telling lawmakers in their own memo that the Bankers Association mischaracterized several things about the bill, including that it would let anyone join. The league also accused the association of complaining in public about issues that haven't been brought up in long-running, and still ongoing, negotiations on the bill.

Schline said the banking industry seems to be arguing “against the fundamental existence of credit unions.”

“It doesn’t feel bill-specific,” he said. “It’s just, ‘credit unions are competition. They don’t pay taxes.’ So they’re attempting to limit or restrict growth by any means necessary.”

The bill has high-profile sponsors: House Majority Leader John Bell, R-Wayne, and Rep. Julia Howard, a Davie County Republican in her 18th term at the General Assembly. The State Employees Association of North Carolina, which has 55,000 members, opposes the bill.

The measure also has the attention of retired long-time SECU head Jim Blaine, who was questioning SECU’s direction under its current leadership before this bill was filed. On his blog, Blaine calls House Bill 410 "The Anything Goes Credit Union Act." Among other things, he questions the idea that banks are leaving financial deserts in rural North Carolina, responding to the credit union league’s map of closed-down branches with a list of banks in Raeford, and suggesting credit union expansions would put small banks out of business.

“Nothing like using one's massive financial clout and tax-preferred status ... to threaten the financial viability of a locally owned, locally focused, North Carolina community bank — without good reason,” Blaine wrote.

Blaine led SECU for nearly four decades. His son, Jim Blaine II, is a former chief of staff to Senate Republican Leader Phil Berger and now a political and business consultant.

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