Tension has existed between community banks and credit unions since credit unions began emerging from their industry-specific enclaves and into the general banking market with their tax exempt status intact.
A generation later, and during a widespread economic recession, that tension has begun to boil over. That's due in no small part to pending legislation in Washington, D.C., that could ease restrictions on credit union lending.
Bankers and credit unions are part of the same industry. They compete and they respect each other, they say. But angering bankers is the perceived unfair advantage granted to credit unions by virtue of their continued tax exempt status and expansion into every corner of the banking world. Meanwhile, credit union executives (many of whom come from the traditional banking world) are tired of defending their profession.
"We're in the same business, but we have different rules to play by and that creates tension," said Matt Sosik, president and CEO of Webster-based Hometown Bank.
Hometown reported total assets of $200 million in its most recent report to the Federal Deposit Insurance Corp. By contrast, Webster First Federal Credit Union, an arch competitor, claimed assets of more than $465 million in its report to the National Credit Union Association.
"We do the same exact things, yet we pay 40 percent of our income to taxes," Sosik said. "You can't provide that kind of competitive advantage over the long term. It's not a tenable situation."
The tax savings and having unpaid boards of directors, as credit unions do, allows credit unions to offer lower interest rates and fewer restrictions, if any, to membership.
Michael Lussier, president and CEO of Webster First Federal Credit Union, said that structure is designed to help credit unions serve the underserved.
"We're helping those people in the community, those blue collar workers that are sick of being taken advantage of by high fees and lower interest payments," he said.
And that's the image that credit unions have thanks to the status that they earned as bankers to the working class by being in-house banks to companies such as Norton or any number of fire departments.
In a 2005 report, Scott Hodge, President of the Tax Foundation, argued that "the U.S. corporate tax rate is one of the highest in the world, and it could be lowered to good effect if some unjustified exemptions were eliminated."
"Credit unions were granted a tax exemption almost 70 years ago so that they could serve low-income people who had little access to financial services," Hodge argued. "Now credit unions are growing by leaps and bounds, serving middle- and high-income people. Why should the exemption continue?"
But Dan Egan, CEO of the Massachusetts Credit Union League, says that's not exactly true.
"Banks contend that (credit unions) were set up for people of limited means, but that was never the case. They were set up for all consumers," Egan said.
He said that since Massachusetts chartered credit unions in 1909, the institutions have acted as a check and balance for the banking industry.
Never have credit unions' effectiveness as a check and balance been more apparent than in the last couple of years, Egan said. The banking industry's troubles have brought "a heightened visibility and awareness of the value of credit unions," he said.
Egan argued that small businesses are turning to credit unions in greater numbers now because they're finding they can't get the loans they need from banks, or can't meet banks' new, stricter credit requirements.
And now, credit unions are lobbying for the increase of a federally mandated cap on lending. By law, credit unions are allowed to loan 12.5 percent of assets.
Under bills being considered by the U.S. House and Senate, that cap would be lifted to 25 percent of assets, right in line with banks.
"The only ones who don't want this are the banks," Egan said.
Bankers are just tired of having credit unions flaunt their tax exemption-sponsored wealth, and the local flashpoint is right in downtown Worcester: The DCU Center.
In 2004, Marlborough-based Digital Federal Credit Union paid $5.2 million in a 10-year deal for exclusive naming rights of what was then the Worcester Centrum. And that move of marketing genius has roiled local bankers ever since.
"For DCU to pay…for the naming rights while being tax exempt should outrage everyone who pays taxes in this state," Sosik said. "That's not a good use of your tax exemption, and that really got in the craw of community banks across the state. They're doing this instead of taking $5.2 million and sending it to the federal government. We spend $2 million a year on taxes."
The DCU Center spend is front and center of a site created by the Massachusetts Bankers Association, CreditUnionRuse.com. The site highlights Digital Federal Credit Union, Greylock Credit Union in Pittsfield and HarborOne Credit Union in Brockton.
Customers don't necessarily see the differences between banks and credit unions, however. In Central Massachusetts, where there seems to be a bank branch on every corner, it's difficult to call anyone "underbanked" or underserved.
And in many cases, banks and credit unions coexist without any direct animosity.
For example, Webster First's former headquarters (it's since moved its administrative offices to Worcester) and Hometown Bank's main branch are within spitting distance of each other.
"We know each other, and it works," Sosik said. "But would we be better off if they were paying taxes? Yes."