A group of small Virginia banks has blocked the giant Virginia Credit Union from adding a large, prosperous bloc of potential customers to the more than 300,000 members the financial cooperative already serves.
The State Corporation Commission rebuffed VACU’s bid to add the more than 10,000 members of the Medical Society of Virginia to the state and local government workers, employees of several hundred companies, Virginia college students and residents of Richmond, Petersburg and Hopewell who are already eligible to join the non-profit cooperative. In doing so, the commission reversed a 2019 decision by its Bureau of Financial Institutions to authorize VACU’s expansion.
The battle between the banks and VACU over the Medical Society members has run for more than three years, the latest in a decades-long contest between banks and big credit unions for customers. In the end, the SCC affirmed a more traditional view of what a credit union ought to be: taking deposits and making loans to a group of people who share a common bond, typically where they work, unless the group is too small to make a viable financial operation.
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In Virginia, that cutoff for when a group is too small to form a viable credit union has been 3,000 people — but the last time a single-group credit union was launched in Virginia was more than two decades ago. Since then, it’s been the multiple-group credit unions, like VACU, that have seen most of what growth there’s been.
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But in the case of the Medical Society, the SCC said VACU did not show that it would not be practicable for the doctors’ group to form its own, stand-alone credit union that could meet state standards for soundness and the safety of depositors’ money.
The Medical Society had argued that it “wanted to offer physicians tools to address their own well-being” by giving access to a credit union’s financial education and helping manage the big debts young doctors often struggle with.
“Raiding MSV to form a Hypothetical MSV Credit Union is more likely to be an exercise in futility for two entities than a success for either one,” the Medical Society said in one filing.
Christopher Shockley, VACU’s CEO, argued that a standalone Medical Society credit union would face major challenges hiring qualified staff, especially for handling credit union accounting and finance, technology, and cybersecurity.
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He said the society would also need to launch a grassroots fundraising effort, which could be beyond its reach.
“Because MSV’s members admitted that they sought financial education about how to run a business, how to manage debt, and how to finance funding for starting a practice, it did not seem that this would be a viable group for actually running and operating their own safe and sound depository institution,” Bureau of Financial Institutions commissioner Joseph Face had said, explaining his decision to allow VACU to add Medical Society members.
But seven mainly rural banks, joined by the Virginia Bankers Association, argued that they had grounds to block VACU’s Medical Society move because their business would be harmed when such a big credit union — VACU’s assets approached $5 billion — added doctors to its membership. Professionals, including doctors, are an important market for community banks because they are often too small to chase the banking business of large corporations.
Bankers have long grumbled that credit unions look and act more like banks, but with the competitive edge that comes from the tax break they get as nonprofits.
“Never before had the Commissioner of Financial Institutions approved the expansion of an existing credit union where the member group proposed to be added had 10,000 members — which is more than three times the threshold of 3,000 allowed by Virginia law,” said DeMarion P. Johnston , general counsel for the Virginia Bankers Association.
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