Fintechs—not credit unions—emerged as the main villain Wednesday at a House Financial Services Committee subcommittee hearing exploring consolidation in the financial services industry.
In his testimony before the Consumer Protection and Financial Institution Subcommittee, David Reuter, CEO of FirstBank in Colorado, said that credit unions purchasing banks is one reason for bank consolidation. As he said in his written testimony, Reuter, who testified on behalf of the American Bankers Association, accused credit unions of leveraging their tax exemption to make such purchases.
Last week, the Independent Community Bankers of America purchased print and digital advertising in an effort to push the subcommittee to explore the impact that credit unions purchasing banks has had on consolidation. But no member delved further into that issue. Credit union trade groups, that did not have a witness testifying, instead sent letters to subcommittee members attempting to refute Reuter’s and the ICBA’s claims.
House Financial Services Committee Chairwoman Rep. Maxine Waters, D-Calif., said that in the past, there were public hearings before a bank merger was approved. She said those should be reinstituted.
It was financial technology companies that gained the most attention during the hearings. Several subcommittee members and witnesses said that fintechs can be an effective means for providing financial services, with some reservations. “I’m concerned about how financial technology and artificial intelligence are reshaping financial services,” said Rep. David Scott, D-Ga.
Reuter said that fintech firms are not regulated the same way that traditional financial services providers are regulated. “To me, that’s a fundamental difference between banks and fintechs,” he said. He added, “Let’s make financial technology play by the same rules.”
The subcommittee had several bills listed on a memorandum prepared by the Democratic committee staff. Rep. Brad Sherman, D-Calif., said that one of those bills would give the National Credit Union Administration the power to oversee third-party vendors. He said he believes the Financial Services Committee should hold a separate hearing on that bill.
Rep. Tom Emmer, R-Minn., touted his legislation that would change legislation dealing with credit union governance. Under current law, credit unions must hold a membership meeting before a member may be expelled. Emmer’s bill would establish a simpler process, while guaranteeing due process.
In letters to the subcommittee, credit union trade groups said that credit union-bank mergers should not be considered a problem. “Contrary to what the banking trades might say, bank and credit union mergers are typically a win-win for a local community that may lose its community-focused financial services, or even local employees and branches, if a mega-bank buys the local community bank,” Brad Thaler, vice president of legislative affairs at the National Association of Federally-Insured Credit Unions wrote.
Jim Nussle, president/CEO of the Credit Union National Association wrote that such mergers should be encouraged. “The deals occur between two private entities in the free market and should be encouraged, not impeded, as they decrease banking deserts and improve financial access,” he said.
John McKechnie, senior partner at Total Spectrum, noted that bankers have been trying to make the credit union issue a major controversy. Following the hearing, he said, “Talk about sound and fury, signifying nothing.”
He added, “Congressional staff have said that the bank trades have tried to make an issue out of banks selling to credit unions all year, and it just never seems to get traction. I’m certainly not giving advice to the bank lobby, but maybe they should find something else to be upset about. Or, better yet, spend more time doing a better job of serving the marketplace and less time worrying about credit unions.”