New Credit Union Deregulation Helps Consumers and Entrepreneurs

In my Forbes column last week, I wrote about how America’s credit unions faced massive new regulatory burdens from the Consumer Financial Protection Bureau.

But just after my column was posted, credit unions – and American consumers – got some good news from credit unions’ primary regulator, the National Credit Union Administration. The NCUA modernized and deregulated “field of membership” rules so that more Americans will be eligible to join different credit unions. The new rule expands financial choices for Americans and lifts barriers to access to capital and credit.

Long before the modern “sharing economy” began, member-owned credit unions pioneered trends such as crowdfunding and peer-to-peer lending. And the new field of membership rule helps bring things full circle, enabling credit unions to partner with sharing economy workers and entrepreneurs.

For instance, full-time employees of certain companies and industries have long been able to form credit unions due to their “common bond.” Employees of companies like Boeing and American Airlines have formed credit unions that now are among the largest.

The new rule updates the definition of “common bond” to include many contractors and affiliated entrepreneurs as well. This means that perhaps a group of Uber drivers or Airbnb landlords could form credit unions to better serve their financial needs.

Needless to say, banks that compete with credit unions have expressed some proverbial sour grapes about the new rules. While I sympathize with banks, particularly community banks, on the regulatory burden they face (and credit unions do as well), they should stop making credit unions their boogie man.

The tax advantages credit unions supposedly receive are exaggerated. Though credit unions aren’t taxed as corporate entities, their members are fully taxed on the returns they receive on their accounts at credit unions. Many banks are set up as S-corporations with a similar single taxation structure. Ryan Ellis of the Conservative Reform Network explains the tax similarities in more detail here.

Credit unions and community banks should both recognize that the main obstacles that keep them from better serving their customers are the massive regulations stemming from laws like Dodd-Frank and the monster that law created in the CFPB. They should focus their energies not on fighting each other, but attacking the Big Government onslaught that threatens them all.