New coalition says rural SC towns need more banking options. Banks will fight it.

Palmetto Citizens Federal Credit Union is in negotiations to buy this historic building in Whitmire. (Provided by Palmetto Citizens Federal Credit Union)

COLUMBIA — When First Citizens Bank closed its branch in the small town of Whitmire — population 1,400 — the president of Palmetto Citizens Federal Credit Union called up the mayor and offered to open a location.

Mayor Billy Hollingsworth and two council members made the drive to Columbia to meet with bank executives.

"I liked what I heard, and I saw it as a good fit for the town of Whitmire," Hollingsworth said.

It would give residents and businesses in the Newberry County town a local financial option. The mayor said he hoped the town might also do business there.

There was just one issue: South Carolina state law does not allow local governments to deposit taxpayer money in credit unions. They can only do business with traditional banks.

The group asked Sen. Ronnie Cromer, R-Prosperity, to carve out an exception for the town through a clause in the state budget. Cromer's district includes Whitmire, and he chairs the Senate banking committee. The group got its request. But what legislators approved didn't help other towns that might want to do the same.

While the one-year budget rule doesn't name Whitmire, the definition for towns that qualify for the exemption is so limited, it may apply to few other local governments.

Now, credit unions and local government leaders across South Carolina want to change state law to give all towns more banking options.

But the effort by the newly formed Palmetto Public Deposits Coalition will have officials with banks and credit unions butting heads — both sides arguing it's a matter of fairness and the free market.

As more South Carolina banks are acquired and consolidated by national banking institutions, the coalition argues rural communities are left underserved.

"Convenience is the main thing," Hollingsworth said.

The town of Whitmire takes in a good number of cash payments, and employees have to drive for more than an hour roundtrip to make a deposit.

Palmetto Citizens Federal Credit Union is in negotiations to buy and renovate a historic bank building on the town's main street, said Robert Dozier, the credit union president.

Once that's completed, traveling 30 or more miles will no longer be a prerequisite for banking — for the town or anyone else who lives there.

"It is 2024, and public entities in South Carolina deserve to have a choice on where public money is deposited," said Rick Osbon, former mayor of Aiken and chairman of the Palmetto Public Deposits Coalition.

Osbon served on the Municipal Association of South Carolina board for eight years while he was mayor and the trend of small towns without banks became apparent.

"As banking is changing, we don't have as many hometown banks as we once did," he said.

Not every town is as lucky as Aiken, which has locally owned and headquartered Security Federal Bank, where the city government banks.

As much as 78% of all deposits in South Carolina last year were put into banks headquartered in another state, according to the coalition.

The group argues by opening up credit unions as an option for towns, those taxpayer dollars can help finance small business loans and home mortgages, helping to support rural economic growth and stability.

On the other hand, credit unions are not-for-profit and have tax-exempt status, which often allows them to offer lower fees and better interest rates. But that also means the state could take in fewer corporate tax dollars from bank-generated profits on public deposits.

Banks paid $95 million in state taxes during the 2022-23 budget year, according to the state Department of Revenue.

Fred Green, CEO of the South Carolina Bankers Association said banks are consistently the fifth- or sixth-highest tax generating industry group in the state.

Green called the coalition's proposal "another example of overreach and mission creep by the credit unions."

Credit unions, he said, were created to provide an option for people who lacked access to traditional banking. Historically, they have stuck to that mission, but in the past decade, Green said, the credit unions have been more aggressive in efforts to expand.

The banking association didn't fight the very limited exemption added to the budget in the last legislative session.

Specifically, it allowed a federal or state credit union headquartered in South Carolina to take deposits from towns only if they have less than 5,000 people, and they're located at least 10 miles from a bank branch and are not considered part of a major metro area, which can expand far beyond a city's limits.

The association wouldn't oppose that tailored rule becoming permanent law, Green said, but the banks will fight the coalition's expansion effort.

Dozier said the proposed law change would not force governments to use credit unions. And it would be up to each credit union to make sure it had the assets necessary to serve government entities.

"They don't have to say yes. They have a choice," Dozier said.