How Credit Unions are Draining Louisiana Communities

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Last month, OnPath Federal Credit Union agreed to buy Heritage Bank of St. Tammany in Covington, Louisiana, a century-old institution with deep local roots. The deal was hailed by OnPath CEO Jared Freeman, who praised Heritage’s “unwavering commitment to the local community.” But what Freeman failed to mention is that the acquisition will rob that community of a critical source of revenue.

Because OnPath is a credit union and thus tax-exempt, the deal means that St. Tammany Parish will lose a reliable stream of tax payments. Those dollars help fund schools, pay essential public servants like police officers and firefighters, and support other vital public services across the parish. Once the acquisition is finalized, that revenue will disappear, and the burden of making up the difference will fall squarely on the shoulders of local taxpayers.

The example of OnPath in Louisiana illustrates a much bigger problem across the country: credit unions are no longer the small, member-focused institutions they were established to be. Many have grown into large financial operations, similar to banks, all while enjoying tax-exempt status. Lawmakers must investigate whether credit unions’ tax-exempt status is still necessary in light of their significant growth, which is ultimately leaching revenue from state and local governments and setting the stage for higher taxes on local communities.

The situation in Louisiana is not the first. Texas Dow Employees Credit Union (TDECU) had planned to acquire Sabine Bank and Trust, which is based in Many, Louisiana. Although TDECU ultimately backed away from the acquisition, it underscores the fact that credit unions have strayed far from the original mission Congress envisioned when it exempted them from most federal, state, and local taxes under the Federal Credit Union Act. It’s time for Congress to revisit whether the tax breaks are still justified.

Credit unions like TDECU have grown into large financial institutions by leveraging taxpayer subsidies. Far from its founding mission to serve the residents of Lake Jackson, Texas, TDECU now serves over 380,000 members across the state. Ending 2024 with $4.8 billion in total assets, TDECU’s services have widened to include wealth management investment products through its partnership with LPL Financial, which they even acknowledge as being a conflict of interest. The growth doesn’t stop there. Credit unions are buying community banks at a time when bank consolidation and burdensome regulations are putting extreme pressure on banks’ bottom lines. The current regulatory environment and credit union acquisitions are exacerbating bank consolidation. In fact, data from the Federal Deposit Insurance Corporation (FDIC) shows that the number of community banks dropped by 46% over the last two decades, falling from 7,620 in 2003 to 4,129 in 2023. Credit unions are thriving, and skirting taxes while community banks are getting squeezed.

One negative outcome of tax-exempt credit unions acquiring community banks is that local and state governments lose revenue. This essential tax revenue helps fund local schools, projects, and infrastructure. The state of Louisiana has a bank shares tax that funds local communities, but when a credit union acquires a bank, it eliminates that source of revenue and results in less funding for local services. The shortfall in revenue could compel a parish to raise taxes on households to maintain a balanced budget. According to the Tax Foundation, “since 2011, more than 100 credit union–bank acquisition deals have been announced across the country.” Credit unions get to grow and avoid paying taxes, while American households across the country are getting forced to foot the bill at the end of the day.

Americans expect transparency, safeguards, and a level playing field from banks. These same principles should apply to credit unions. This is not about eliminating credit unions; it is about accountability and ensuring the law matches credit unions’ behavior. In an era where credit unions operate more like large financial institutions and less like community-oriented lenders, Congress should conduct oversight hearings and reexamine whether their tax-exempt status still aligns with their actions today. Louisiana taxpayers, in towns like Many and Covington, and in parishes around the state, should not have to pay more taxes because the law, as currently written, allows credit unions to exploit their tax loophole.

Ken Hale is the President & Chief Executive Officer of BOM Bank

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