Wednesday, May 18, 2016

Massachussets Study: Tax Subsidy Going to Higher Expenses

Credit unions in Massachusetts provide insufficient member benefits to offset the favorable tax and regulatory treatment they enjoy, according to a study released this week by research firm PolEcon.

"The benefits to Massachusetts consumers do not appear significant enough to warrant laws and regulations that, by design, or as a consequence, result in credit unions capturing a larger share of the banking market in Massachusetts," the study found.

The report noted that Massachusetts credit unions have grown in part by gaming the low-income credit union designation, which provides substantial regulatory relief. The number of low-income designated credit unions in Massachusetts has risen from 11 in 2012 to 57 in 2016, in part by counting students within their low-income footprints. However, the study found little benefit to members from the low-income designations.

The four Massachusetts low-income credit unions with assets of more than $1 billion were more likely than banks to make mortgage loans to high-income borrowers and less likely than banks to serve low-income mortgage customers. In addition, since 2002, Massachusetts’ banks have received higher CRA ratings for meeting the needs of lower- and moderate-income individuals than have Massachusetts’ state-chartered credit unions.

Moreover, the study estimated that the corporate tax subsidy provides Massachusetts credit unions with an approximately 32 to 44 basis point annual subsidy that can be allocated toward higher deposit and lower interest rates on loans, higher expense ratios (more overhead expenses), or in greater retained earnings that provide capital for growth. Evidence indicates that while some of the subsidy benefits depositors and borrowers, a greater share goes to retained earnings and higher expense ratios. In fact, Massachusetts’ mutual banks, which have a similar governance structure as credit unions, have significantly lower expense ratios than Massachusetts credit unions.

The study also found that Massachusetts’ largest credit unions are more profitable than Massachusetts’ banks.

The study was funded by the Massachusetts Bankers Association.

Read the study.

1 comment:

  1. "This study doesn't merit serious consideration bc it's bought and paid for by banks". Dan Berger.
    What a clown.
    So credit unions shouldn't and many of us don't, believe the garbage "analysis" portraying the savings we are to consumers.
    Btw, Dan, if it doesn't warrant serious consideration then why did you react so seriously?
    Credit unions continue talking out of both sides of our mouth.



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