Credit union mission creep is costing Virginia communities

The first credit union in Virginia was established in 1923 to serve postal workers who lacked access to traditional banking services. In exchange for their service to people of modest means, credit unions were granted a generous tax exemption. That made sense then: Small member-owned cooperatives delivered affordable loans and essential financial services to people who shared a common bond.

Today many of the nation’s largest credit unions, including some of the biggest headquartered here in Virginia, have strayed far from that mission. They exploit their tax loophole to expand aggressively and make large-scale business loans, all while contributing nothing back to the tax base or requirements to reinvest in local communities. Virginia should reject this trend that has led to less competition, a reduction in local financial services for consumers, and weaker local economies.

If Virginia’s 16 credit unions with assets greater than $1 billion had been taxed like other large financial institutions, they would have contributed more than $100 million in tax revenue in 2024 alone. That’s enough for our commonwealth to fund the education of 6,000 students, provide Medicaid coverage for nearly 27,000 low-income children, or pay the salaries of 2,000 firefighters. Without this revenue, it’s Virginia taxpayers who must make up the deficit.

Meanwhile, communities are left with fewer options for local financial services and weaker consumer protections. Credit unions are not covered by the Community Reinvestment Act, which requires community banks to reinvest in the communities in which they do business. In fact, data from the Home Mortgage Disclosure Act shows that aggressive credit union behavior has resulted in troubling patterns. Specifically, credit unions deny a higher proportion of minority borrowers and charge higher rates on the loans they do approve. Compounding these concerns, lawmakers in Congress are demanding answers from Navy Federal for surprise overdraft fees that have exploited millions of service members, veterans and their families.

There is no indication that the credit union industry plans to stop this mission creep at Virginia’s borders. Credit unions in the commonwealth are increasingly expanding into business lending, far afield from their original and intended mission of providing affordable consumer financial services. In the General Assembly, they have repeatedly lobbied for permission to accept taxpayer-funded municipal deposits.

Simply put, they want your tax dollars flowing into their coffers despite not contributing to the tax base themselves. In turn, credit union expansion into commercial lending disintermediates taxpaying community banks, reducing the amount of deposits from which local banks can lend and avoiding significant local tax revenues generated annually by the Virginia Bank Franchise Tax (which generated more than $140 million in local tax revenue in 2024). This move is not one that strengthens local economies. It’s about financial growth at any cost.

Virginia should act now to prevent this trend from picking up more steam in the commonwealth. When credit unions act like banks, without meeting the same regulatory and tax obligations, communities lose revenue and critical options for financial services. And Virginia taxpayers ultimately foot the bill.

This legislative session, lawmakers in Richmond should consider taking action to protect communities with commonsense solutions. Doing so would level the playing field, prevent credit unions from leveraging their tax exemption to undercut competitors, and generate much-needed revenue for schools, infrastructure, health care and public safety.

A diverse financial service marketplace in Virginia is essential for consumers. Both community banks and credit unions have important roles to play. But credit unions were never meant to become multi-billion-dollar enterprises exploiting tax loopholes and dodging consumer protections. Lawmakers should act now to protect Virginia’s robust local financial services ecosystem.

Corey Connors is the president and CEO of Virginia Association of Community Banks in Richmond.