Editor’s Note: This is the third in a three-part series. Part I can be found here. Part II can be found here. The CU Daily encourages your feedback.

By Ed Speed

In recent years, the final and most troubling stage of transformation has taken place—the complete erosion of the common bond and the rise of credit unions as profit-driven entities indistinguishable from banks.

What is this hallowed and sacred  common bond that credit unions trades tout so strongly as the primary reason they deserve special treatment?  Let’s examine exactly  what the law states:

“To promote thrift and credit extension, a meaningful affinity and bond among members, manifested by acommonality of routine interaction, shared and related work experiences, interests, or activities, or the maintenance of an otherwise well-understood sense of cohesion or identity is essential to the fulfillment of the public mission of credit unions.”   [Public Law 105-219, Aug 7, 1998 – The Credit Union Membership Access Act, section 101]

Associational Fields of Membership (FOMs): A Legal Loophole Disguised as Inclusion

At the heart of this destruction is the abuse of associational fields of membership (FOMs). Originally designed to allow select groups with shared interests to form a credit union, this provision has been stretched beyond recognition.  Some examples are laughable, sadly. 

In Central Texas, two major credit unions—each with billions in assets and hundreds of thousands of members—offer membership through the Texas Consumer Council, according to one of these credit union’s website:

“If you have purchased a major consumer product or service in the past three years, you are eligible to join the Texas Consumer Council.”

By this definition, virtually every Texan qualifies. This is not a common bond—it is a thinly veiled mechanism to justify mass-market expansion.

At another Texas-based credit union, the requirement to join an association is waived entirely if you apply directly through to the credit union for membership – there is even an easy check-box for it. Application for the association and CU membership are the same form. This underscores the flaw in the system: membership eligibility has become a mere technicality, eroding the core identity of credit unions, no real common bond is required.

The American Consumer Council, which does provide a wealth of laudable consumer education, offers this associational loophole to credit unions across the nation.

Perversely, this might save a lot of small credit unions.   Prior to the NCUA abandoning regulating FOM expansions, large credit unions would lust after the FOMs of small credit unions.  I can attest to this.  During my tenure as a CEO, I effected three mergers, all with the primary goal of FOM expansion.   We really didn’t need the assets or members, but we really wanted to expand our footprint.  We were simply buying new FOMs.   That is no longer needed.

Credit Union Service Organizations (CUSOs): Trojan Horses of Profit-Driven Expansion

Another problematic development is the evolution of Credit Union Service Organizations (CUSOs). Originally intended to help credit unions share back-office services, CUSOs have become vehicles for risk-taking and profit generation and side compensation for executives. 

Large credit unions now use single-owner CUSOs to engage in activities they could not legally undertake themselves. Through these entities, credit unions:

• Own and operate commercial businesses that have little connection to traditional credit union services.
• Participate in high-risk lending and investment practices that expose members to financial instability. 
• Purchase banks outright, a move that directly contradicts the very reason credit unions were created—to serve people, not profits.

Tools to Act Like Banks

In short, CUSOs have become tools for credit unions to act like banks while maintaining their tax advantages and regulatory leniency.   When the NCUA rightfully attempted to investigate CUSO operations as part of examinations, the industry went berserk with indignation and pushed back any regulation.    

Under consolidated accounting rules, the failure of a single CU-owned CUSO can, and has, destroyed a parent credit union.  One such debacle underscored a major weakness in how some CUSOs operate—often under less regulatory scrutiny than credit unions themselves. 

The FDIC and other federal bank regulators (such as the OCC and the Federal Reserve) can and do examine bank subsidiaries, especially if those subsidiaries pose risks to the bank itself. In contrast, the NCUA does not have direct examination authority over CUSOs—even though credit unions often have significant financial exposure through them.  Keep in mind that the NCUA has nothing to gain and everything to lose if credit unions do not continue to expand.

The Final Reckoning: Has the Credit Union Movement Lost Its Soul?

What credit unions have failed to realize is that their power never came from being banks without shareholders—it came from being a fundamentally different model of finance.

The original credit union movement was built on the idea of people helping people—a grassroots, community-driven common-bond effort to provide financial services to those overlooked by traditional banks. But today’s credit union giants no longer resemble the small cooperatives they evolved from. Instead, they are:

• Focusing on expansion for the sake of asset growth, rather than community needs.
• Gaming regulatory loopholes to behave like banks while avoiding taxation and oversight.
• Prioritizing institutional preservation over the well-being of their members.

This transformation has led to a deep moral and strategic crisis. Credit unions today must confront a sobering question: Are they still serving their members, or are they simply another financial empire chasing profits?

A Call to Action: What Must Be Done

The credit union industry stands at a crossroads. If the movement is to survive as something more than just another banking sector, serious reforms must take place:

• Reaffirm the Common Bond
• Rein in CUSO Abuse: NCUA must examine CUSOs
• Prioritize Mission Over Market Share: Leaders must recommit to member-first policies rather than chasing asset size, geographic expansion and soaring executive compensation.
• End the Tax Loophole Hypocrisy: Either CUs return to their original purpose, or they must accept the full regulatory and tax burdens of their new identity.
• Regulatory Capture: It is time to merge the NCUA into the FDIC/OCC sphere, which is proposed in project 2025.
• Align executive compensation with performance metrics that prioritize member value, financial stability, and long-term sustainability rather than simply asset size.

Final Thought: A Movement on the Brink

At their best, credit unions were once a shining example of cooperative finance—a testament to the power of community and shared prosperity. But today, the industry is at risk of losing everything that made it special.

Credit unions have always prided themselves on being the alternative to big banks. But if they continue down this path, the irony will be inescapable: they will have won the battle for expansion, only to become the very thing they once opposed.

At that moment, they cease to be credit unions.

For those credit unions that are already beyond salvation, they are just banks.  It is time to regulate and tax them as such.

Edward Speed is the retired CEO of a multi-billion-dollar credit union, who holds a Masters Degree in Theology.   These days he spends his time serving food, washing dishes and sweeping floors at a Catholic Work House helping homeless senior citizens.