Credit unions have transformed from small, community-oriented institutions into large financial conglomerates that are launching their own investment management divisions and acquiring banks. Originally, their purpose was to provide financial services to individuals with modest means. Today, however, their operations resemble large Wall Street financial institutions more than nonprofits, and the relevant legal and regulatory structures have failed to keep up.

Credit unions were never intended to function like financial conglomerates. In fact, when first established during the Great Depression, they were meant to cater to populations who could not access regular banking services. Now, they’re dumping millions of their own members’ dollars into acquiring traditional banks.

Mergers and acquisitions, of course, are perfectly normal market behaviors that happen all the time. The issue is that credit unions, as nonprofit entities, enjoy advantages like exemptions from paying federal, state, and local income taxes. These benefits were provided to support the specific mission of increasing access to financial services for low-income and unbanked individuals, while constraints like requiring a “common bond” among members (sharing an employer, religion, geographic area, etc.) sought to keep credit unions from using their tax advantages to unfairly compete with traditional financial services.

But those rules have since been relaxed by lawmakers, resulting in significant changes in how credit unions operate.

The first acquisition of an entire bank by a federal credit union didn’t occur until 2012. Since then, the practice has exploded. In 2024, there were a record 22 acquisitions of banks by credit unions, accounting for almost 20% of all announced bank mergers that year.

Political opposition to this trend has started to form as state and local governments lose out on revenue for every purchase of a taxpayer bank by a tax-exempt credit union. Lost government tax revenues may or may not strike one as a concern depending on one’s ideological preferences, but it’s demonstrative of the market distortions at play. Credit Unions are able to offer a higher price for an acquisition than a traditional bank because they anticipate a higher return resulting from lower expenses. Unfortunately, their reduced costs are not due to greater efficiency or other innovations, but rather to government favoritism. And unlike other nonprofits, federal credit unions are not required to make public financial reports on Form 990.

The industry’s largest credit union acquisition to date happened early last year when the $11.4 billion Global Federal Credit Union based in Alaska purchased $1.4 billion First Financial Northwest Bank in Washington, for over $230 million in cash. That means Global First used their own members’ money to go forward with this acquisition.

In addition to buying up banks, credit unions have also recently been focused on creating investment arms of their own. In June of this year, Service Credit Union in New Hampshire launched Service Ventures, an independent investment arm. The largest credit union in the U.S., Navy Federal, has an investment arm, Navy Federal Investment Services, which recently partnered with Osaic, a wealth management platform.

 In May of this year, it was reported that Osaic added five credit union-affiliated wealth programs to its institutional platform. All five credit unions together collectively manage close to $500 million in client assets. Far from the mission of uplifting underserved communities, these credit unions are capitalizing on mergers and acquisitions and investment arms to generate more revenue.

It’s clear that credit unions are increasingly operating as traditional financial institutions. That wouldn’t necessarily be a problem were it not for the fact that they don’t operate under the same set of rules. Regulatory neutrality, an important governance principle that ensures an even playing field, needs to be restored.