Credit union mergers spark debate over Tucson’s financial future | News

When Tucson Old Pueblo Credit Union announced its merger with Idaho Central Credit Union earlier this year, the news signaled more than just a strategic alignment between two member-owned financial institutions. 

For many in Southern Arizona, it marked a shift in the identity of a Tucson-based credit union that had served the community for nearly a century (it was founded in 1935 by a group of city employees pooling resources to serve their own), and reignited broader debates about what it really means to be “local” in today’s financial sector.

“This merger allows us to better serve Tucson’s residents and provide new opportunities for employees,” said Jeff Dunlap, ICCU’s community development manager. “By joining forces, we were able to expand the financial products and services being offered while maintaining strong local leadership and community ties.”

TOPCU’s integration into ICCU — set for full completion this September — grants  its members access to an upgraded mobile app, expanded loan options and a broader suite of business banking services. ICCU has committed to keeping all TOPCU branches open, retaining local staff, and even seeking new branch locations in the Tucson area. To top it off, the credit union has pledged $1 million over five years to support local nonprofits and community initiatives.

“We’ve retained the trusted local staff our members know, ensuring we stay closely connected to the needs of the Tucson community,” Dunlap promised.

But the growing trend of credit unions merging with out-of-state institutions — or acquiring community banks, an even bigger trend — has drawn scrutiny from banking advocates who argue that the cooperative model is being distorted.

Attention on the outsized financial power of credit unions heated up last December, when the Wall Street Journal called out the business coup scored by Virginia-based Northwest Federal Credit Union, which had merged with three other credit unions since 2005 to put it in position to get its name on an out-of-state NFL stadium — a first for a credit union.

“Credit unions were originally given a federal tax exemption to serve people of modest means — those not well served by commercial banks,” said Michael Emancipator, senior vice president and regulatory counsel for the Independent Community Bankers of America (ICBA), referring to the Federal Credit Union Act of 1934. But “acquiring branches that I’ll never visit in my entire life, I don’t understand how that is going to make a better proposition for me being a member of your credit union. The acquisitions are really just inflating the gravitas of the organization; it’s not actually helping the individual members.”

Across Arizona, the merger between TOPCU and ICCU is but the latest example of credit unions increasingly using acquisitions to scale up and expand their geographic reach. In the past two years, the state has seen a surge in credit union–bank consolidations, several of which involve institutions rooted in Southern Arizona.

Tucson-based Pima Federal Credit Union finalized its acquisition of Phoenix’s Republic Bank of Arizona in May, extending its reach into the metro Phoenix area with three new branches. Around the same time, Yuma’s Avenir Financial Federal Credit Union announced plans to acquire Mission Bank in northwestern Arizona — a deal expected to grow Avenir’s assets by nearly 50%. Meanwhile, OneAZ Credit Union, a Phoenix-based heavyweight, is in the process of acquiring 1st Bank Yuma, gaining footholds in Yuma, San Luis and Nogales — key border communities with unique financial needs.

According to Emancipator (he admits his heroic surname may have nudged him toward work championing the underdog), what’s happening in Southern Arizona is part of a national trend in which tax-exempt credit unions, some with tens of billions in assets, are acquiring tax-paying banks and using those acquisitions to expand into new markets. He calls it “a public policy failure.”

“That tax subsidy was never meant to fuel out-of-state expansions or buyouts of banks,” he said. “It was supposed to support the members — through lower loan rates and better savings returns. But in many of these deals, the direct benefit to members is questionable.”

Nicole Swann, VP of communications for the ICBA, argues that community banks — not credit unions — are more consistently serving rural and low-income communities today.

“Community banks fund 60% of small business loans and 80% of agricultural loans, while holding only 25% of the industry’s assets,” she said. “During the pandemic, they pushed out the majority of those small business loans. So they’re very much in the community, and they do a lot of community service.”

Still, many of Tucson’s credit unions continue to distinguish themselves through mission-driven lending — particularly around housing access for the region’s working and middle-class residents. And they’re quick to remind critics that while credit unions don’t pay federal income tax on profits, those profits are returned to members in a variety of ways.

In 2023, five local credit unions — including Tucson Federal Credit Union, Pima Federal, Hughes Federal, Pyramid and Vantage West — joined forces to launch the Tucson Welcome Home program. Designed specifically for middle-income earners who are priced out of the current market, the program offers 100% financing on mortgage loans, no private mortgage insurance and no origination fees.

The Welcome Home program, which won a BLOOM Award from the Tucson Metro Chamber, has become a model for how local financial institutions can collaborate to drive social impact while meeting real economic demand.

Credit unions are also stepping up their small business and home equity lending in neighborhoods underserved by traditional banks. TFCU, for instance, has expanded its Community Development Financial Institution designation to target loans in historically underbanked areas, while Pima Federal has deepened its partnerships with local builders and nonprofits to facilitate low-cost housing developments.

For Tucson’s credit union sector, TOPCU’s merger with ICCU is more than just a power play — it’s a signal that even midsize credit unions must scale up or risk falling behind. 

“What sets this partnership apart is ICCU’s commitment to both our members and the communities we serve,” Dunlap said. “This merger allows us to provide value to Tucson by delivering competitive rates and greater access to capital, enhanced technology and the continuation and extension — both in dollars and time — of TOPCU’s community involvement. Our $1 million five-year pledge is just one example of how all of us at ICCU intend to support and invest in the Tucson market. Our mission is to help our members achieve financial success – that includes residents, businesses and nonprofits alike. This approach positions our members and communities to thrive and we’re absolutely committed to doing that here.”

He emphasized that ICCU’s investment in Tucson goes beyond products and services. In addition to its million-dollar nonprofit pledge, ICCU’s “Green Team” has increased volunteerism in the area and bolstered partnerships with groups like the Tucson Fire Department.

Still, questions persist over whether credit unions — particularly large, fast-growing ones — should be held to the same regulatory and tax standards as their community bank counterparts. Currently, credit unions are exempt from the Community Reinvestment Act (CRA), which requires banks to serve the credit needs of their entire community, including low- and moderate-income neighborhoods. They’re also examined for fair lending compliance far less frequently than banks.

“Community banks are deeply embedded in their communities,” said Emancipator. “They’re more likely to be headquartered locally, fund local business loans and be held accountable to local customers. A megabank or multi-state credit union isn’t as dependent on the success of any single community. Community banks are.”

Still, Emancipator emphasizes that the majority of credit unions are actually achieving their statutory mission.

“I would say the vast majority of credit unions are actually trying to do the right thing and serve people of modest means,” he said. “Our concern is with the ones that are really using their tax exemption to just grow at all costs, that are prioritizing their growth. And those are traditionally the larger credit unions, the ones that are billion dollars and above.”

Those represent only about 10% of the industry, he said, “but they represent more than 70% of all the credit union assets. So a minority of institutions hold a super majority of all the credit union industry assets. That’s what we’re concerned about.”