OLYMPIA, Wash.—Calling it a “fatal mistake,” the pioneer of CU purchases of banks says the decision by the Washington State legislature to tax state-chartered credit unions that buy banks has weakened the state charter here and will lead to “ripple effects.”
Michael Bell, partner and chair of the Financial Institutions Practice Group at Honigman LLP, warns the recently passed legislation will likely prompt many Washington-based credit unions to convert to a federal charter. Additionally, he predicts an increase in out-of-state credit unions acquiring banks within Washington.
Industry analysts echo Bell’s concerns, cautioning the move could inspire similar tax efforts in other states—effectively giving bank lobbyists a blueprint to impose state-level taxes on credit unions and curbing credit union purchases of banks. Some also warn the issue could surface in budget bill mark-up discussions by the House Ways and Means Committee this week.
Michael Bell
As CUToday.info reported, legislation just passed in the Washington Senate (SB5794) would repeal the business and occupation (B&O) tax exemption for state-chartered credit unions that merge with or acquire a bank regulated by the Department of Financial Institutions in Washington. Effective Oct. 1, 2025, such CUs would be subject to a 1.2% B&O tax on their gross income.
The new law applies to Washington state-chartered credit unions on any future bank purchases. The bill now awaits the governor’s signature to become law.
Unintended Consequences
“There are unintended consequences. I'm not criticizing the lawmakers in Washington, but what they just passed is going to have ripple effects—and quickly,” said Bell. “First, Washington state-chartered credit unions are going to analyze if they should remain in Washington under a state charter or should switch to a federal charter. In the past five days I've had two credit unions call me to examine switching to a federal charter.
“Second, this does not apply to federal charters or any other out-of-state chartered credit union,” continued Bell. “I expect to see credit union purchases of banks continue in Washington, but you will see more out-of- state credit unions, as well as more federally insured CUs in Washington, pick up their bank-buy activity.”
What the new law does, according to Bell, is weaken the Washington state credit union charter.
“It will cause people to look elsewhere. I cannot imagine the legislators in Washington want that to occur, or even thought about it. It’s a fatal mistake,” said Bell.
The bill managed its way through Democratically controlled Senate. The state of Washington faces a historic $16-billion gap between revenue and spending needs. Virtually all entities and industries saw tax increases under multiple bills, including banks, sources stated.
Bell, who has been part of more than 75 whole-bank agreements plus additional bank branch purchases, said the path of least resistance now for Washington state-chartered credit unions is to not engage in a bank-buy transactions.
“If you're a Washington state-chartered credit union, and if you want to be in the business of buying banks, you're going to switch charters to federal,” said Bell. “More banks in Washington, when they sell, are going to be selling to federal or out-of-state credit unions.”
Bell does not believe the new law will curb the number of CU/bank buys in the end, as the same number of deals will happen, just among different parties. Bell, too, noted the few states that prohibit credit union purchase of banks only reduce the value of banks in those states due to a smaller number of potential buyers.
“I guess if bankers want the value of their banks to decrease, that's what the bankers get,” Bell said.
Carrie Hunt
ACU Perspective
America’s Credit Unions Chief Advocacy Officer Carrie Hunt said the trade association has been watching for and fighting bills like SB5794 that have popped up in states for a while.
“Recently we saw one in West Virginia,” Hunt said. “That's why America's Credit Unions and our league partners stay vigilant both at the state and at the federal levels. We're seeing the same type of arguments that banks are making at the federal level. The issue with state governments is there tends to be more pressure on budget shortfalls. Unlike the federal government, states have fewer places to get money from.”
The bill passed in a Democratically controlled Senate, a party that has been traditionally sympathetic towards credit unions.
“It really comes down to the individual situation in each state,” said Hunt. “Again, this shows why we have to continue all of our efforts to constantly talk about the credit union difference and talk about banker hypocrisy.”
Hunt said the messages that bankers have been floating in Washington State are the “same tired arguments.”
Did the legislation sneak up on credit unions here?
“It's my understanding this was a last-minute addition to these budget discussions, and that tends to be how some of these issues pop up,” said Hunt. “The way to block against these kinds of efforts is to be constantly flooding the zone and making sure that our messaging is resonating with lawmakers. That’s what we've been doing at the federal level.”
The GoWest CU Association said the increased interest in the bill came as the legislature was working “frantically” to address the large budget deficit.
“It was added at the last minute to a much broader tax bill in the final nine days of the session after key elements of the original tax package were not viable,” explained Jennifer Wagner, GoWest EVP and chief advocacy officer. “That late shift put this particular issue on the table without any assessment or recognition of the real-world impact on state residents or economic realities behind why banks have chosen to sell to credit unions…”
Wagner contended the bankers’ efforts here are not the primary reason the bill passed.
“To be clear, this policy did not pass because of the bankers—the legislature passed a wide range of new and increased taxes, with a significant portion aimed at for-profit banks in an attempt to address a historic budget deficit. This was driven by a legislative desire to maintain existing tax revenue to the state,” Wagner said.
Bills passed this session aimed at closing a massive budget deficit will see small local community banks experience a 20% tax increase, mid-size and regional banks’ taxes increase by 48%, while Wall Street banks will become the highest taxed entities in the entire state paying nearly double the business tax rate. On top of the new tax bills, the legislature repealed a $200-million tax exemption for community and regional banks, Wagner pointed out.
Questions Asked
Could credit unions have done more to lobby against the legislation? Wagner said no.
“This session saw more than $9 billion in new taxes passed in its final days, impacting nearly every sector and industry in the state,” Wagner said. “Credit unions showed up, stood united, and showed the legislature how valuable credit unions are to their member-owners and local communities, ultimately keeping credit unions’ tax exemption off the table. While taxes were greatly increased for other financial institutions and nearly all sectors, a policy preventing banks from choosing to sell to a credit union was put in place, which will generate no new revenue to the state.”
Richard White, SVP chief risk officer. at $22-billion America First Credit Union in Riverdale, Utah, told CUToday.info he is concerned.
“My stance is this is concerning at any level and could set precedent for related efforts at the federal level,” White said.
Defense Credit Union Council Chief Advocacy Officer Jason Stverak emphasized the new law is “another clear sign that the credit union tax status is under coordinated attack at both the state and federal levels.”
The seriousness of the matter was not overlooked by Andrew Downin, CEO of $629-million O Bee Credit Union, who on April 18 sent an urgent email letter to members, asking for their help to write to the state’s lawmakers. O Bee is based in Lacey, Wash.
“Protect Your Credit Union! O Bee Members and Friends — we need your help!” was the subject line to the letter.
“A last-minute amendment to Senate Bill 5794 would impose a new tax on not-for-profit, member-owned credit unions like O Bee. This could impact the affordable loans, low fees, and financial support we proudly offer YOU. A vote could happen as soon as tomorrow morning. This isn’t just a tax on O Bee — it’s a tax on our embers. Please take a moment to contact your State senator and ask them to oppose this harmful amendment. It only takes a minute, but your voice can make a huge difference,” the letter stated.
Bell acknowledged the bank lobby has been “screaming from the rooftops every chance they get” about credit union bank buys. “I guess sometimes the loud voices, regardless of logic and common sense, are heard,” he said.