Source: Farangphoto/Shutterstock.The Iowa Credit Union League released a rare and scathing rebuke of Jeff Plagge, the Iowa Division of Banking Superintendent, arguing he has a blatant conflict of interest in denying the First American Bank’s application to sell its seven branches to Iowa’s largest credit union, the $5.7 billion GreenState Credit Union.
However, there is no apparent conflict of interest because Iowa law requires the superintendent to be a banker and that state law also allows the superintendent to provide services for any enterprise or person under the regulatory purview of the banking division, according to Shauna Russell Shields, bank bureau chief for the Iowa Division of Banking.
“It is shameful for the Superintendent of the Iowa Division of Banking to inject politics and personal gain into a legal business transaction,” Murray Williams, president/CEO of the Iowa Credit Union League, wrote in a statement released Thursday. “Jeff Plagge is both Superintendent of the Iowa Division of Banking and CEO of Northwest Financial Corp, a $2 billion banking conglomerate which owns Northwest Bank. He serves as the regulator and regulated for a bank he owns and leads. Further, Northwest Bank has branches in the Des Moines and Fort Dodge markets which overlap with the branch locations that First American Bank (FAB) chose to sell to GreenState Credit Union. Mr. Plagge’s attempt to halt this business transaction would benefit his bank and himself personally.”
Williams called this a blatant conflict of interest that Plagge should have disclosed. He also noted that Plagge also is the former chair of the Iowa Bankers Association and has publicly been critical of credit unions for years, which Murray said further calls into question the impartiality of Plagge’s decision-making.
But Shields argued Iowa law that requires the superintendent to be a banker who can be involved in a bank while serving as superintendent, indicates the Iowa legislature concluded this market impact is an acceptable tradeoff in exchange for the expertise a banker brings to the position.
“If a Superintendent were not allowed to make a decision on a matter before him simply because his bank is in the same market as a party to the transaction, no Superintendent who is an active Iowa banker could make a decision on a matter relating to a statewide financial institution,” Shields said.
Although Plagge denied FAB’s application to sell its branches to GreenState, it turns out that over the Feb. 28th weekend the two financial institutions closed the deal and the branches are already operating under the credit union’s brand.
Plagge had planned to make his decision about the bank and credit union proposal after the March 5th public comment period ended. But in a March 2nd email letter to a Des Moines lawyer, Stephen H. Locher, who represents FAB, Plagge wrote that because First American closed this transaction without obtaining prior approval, the bank’s application was denied.
However, Locher contends that the Iowa Division of Banking has no authority over the underlying credit union transactions. Nevertheless, the bank superintendent said First American’s proposal does not comply with an Iowa banking law clause that only allows a bank’s assets to be sold and its liabilities to be transferred to another state bank, national bank or financial institution insured by the FDIC.
While the regulator and FAB are now in discussions to resolve this complex legal issue, it is clear that Plagge has strong views about the credit union tax exemption.
In his letter that denied the FAB application, the superintendent wrote that if he would have approved the deal it would establish a precedent that could lead to more tax-paying financial institutions being purchased by tax-exempt financial institutions that could adversely affect the state’s budget.
“A state’s interest in maintaining tax revenue regardless of the charter status of the financial institutions operating within the state is a significant public policy matter,” Plagge said.
But Murray dismissed this argument.
“The acquisition of these branches by an Iowa credit union ensures all deposits stay with an Iowa-owned institution and are not sent out-of-state. The new credit union members will benefit financially to the tune of millions of dollars from the credit union’s better rates and lower fees,” he said. “In addition, the state treasury will see increased tax revenue as highlighted by a 2019 financial analysis verified by (Iowa State University’s) economist Dr. Keri Jacobs.”