Merger Draws Some Media Scrutiny Over City’s Financial Future, CU Tax Exemption

TUCSON, Ariz.–A merger of a local credit union with an out-of-state-based CU has led to media coverage here over this city’s financial future and whether credit unions continue to deserve their tax exemption.

The report was promoted by the merger plans of Tucson’s Old Pueblo Credit Union with Idaho Central Credit Union, with the analysis stating “the news signaled more than just a strategic alignment between two member-owned financial institutions.”

“For many in Southern Arizona, it marked a shift in the identity of a Tucson-based credit union that had served the community for nearly a century (it was founded in 1935 by a group of city employees pooling resources to serve their own), and reignited broader debates about what it really means to be ‘local’ in today’s financial sector,” Foothill News stated.

‘Expanded Products Cited’

The report quoted ICCU’s community development manager, Jeff Dunlap, as saying the merger will provide better service to Tucson’s residents and more opportunities for Old Pueblo CU’s employees.  He also cited expanded products and services, such as an upgraded mobile app, expanded loan options and a broader suite of business banking services. With the merger set for September ICCU has committed to keeping all TOPCU branches open, retaining local staff, opening new branches, in addition to a pledge of $1 million over five years to support local nonprofits and community initiatives.

A ’Growing Trend’

“But the growing trend of credit unions merging with out-of-state institutions — or acquiring community banks, an even bigger trend — has drawn scrutiny from banking advocates who argue that the cooperative model is being distorted,” Foothill News stated, citing a Wall Street Journal report of criticisms over Northwest FCU’s naming rights deal with the home stadium of the NFL’s Washington Redskins. 

“Credit unions were originally given a federal tax exemption to serve people of modest means — those not well served by commercial banks,” Michael Emancipator, senior vice president and regulatory counsel for the Independent Community Bankers of America (ICBA), told Foothill News. But “acquiring branches that I’ll never visit in my entire life, I don’t understand how that is going to make a better proposition for me being a member of your credit union. The acquisitions are really just inflating the gravitas of the organization; it’s not actually helping the individual members.”

Surge of Consolidation

Foothill News noted that in the past two years Arizona has seen a surge in credit union–bank consolidations, several of which involve institutions rooted in the southern part of the state.

“We’ve retained the trusted local staff our members know, ensuring we stay closely connected to the needs of the Tucson community,” ICCU’s Dunlap told the publication.

But Emancipator said what’s happening in Southern Arizona is part of a “national trend in which tax-exempt credit unions, some with tens of billions in assets, are acquiring tax-paying banks and using those acquisitions to expand into new markets.”

‘Public Policy Failure’

Emancipator called it “a public policy failure.”

“That tax subsidy was never meant to fuel out-of-state expansions or buyouts of banks,” Emancipator told Foothill News. “It was supposed to support the members — through lower loan rates and better savings returns. But in many of these deals, the direct benefit to members is questionable.”