ST. PETERSBURG, Fla.–One veteran credit union advocate in Washington is cautioning that for the first time in a long time he is starting to hear more willingness to put the credit union tax exemption on the table for discussion.
While not overplaying the threat, John McKechnie, who has advocated for credit unions on Capitol Hill for decades, said a confluence of factors from expiring tax cuts to troubling headlines about some CUs have combined to raise an issue that has long been considered sacrosanct.
McKechnie’s comments came during the Defense Credit Union Council’s annual meeting. He was joined during a panel discussion by Jason Stverak, chief advocacy officer with DCUC, and DCUC President and CEO Anthony Hernandez, who acted as moderator.
Here's a look at some of what was discussed:
Hernandez: What’s going on on Capitol Hill?
Stverak: There’s a lot of activity on a lot of bills and things that are being introduced, but you're not going to see a lot of things passed…There are a few bright spots out there in terms of activity, and the first one I think of is the National Defense Authorization Act.
The House has passed its version of the bill and, thankfully, because of the work of DCUC, we were able to ensure there was no language…that would have provided for share insurance coverage for natural-person non-members.
We're going to continue working hard on that. We have heard there is an effort to get Sen. (Jack) Reed, chairman of the Senate Armed Services Committee, to include that language in a final (NDAA). That's why we are working with strategic partners. In August, we launched the first part of a targeted digital ad campaign in Rhode Island asking the senator not to include the language.
McKechnie: This is the August recess and things are kind of quiet, but it does feel a little bit like the calm the storm. I think the Fall is going to be very intense. You may know that there is an election in a couple of months that may actually color a lot of things that are going to be happening. Everybody’s on pins and needles.
I don't think you'd find anyone in Washington or outside of Washington who would have predicted the changes of the last month. It’s been the most unpredictable, chaotic and in some ways kind of upsetting time. I mean you had this assassination attempt on a presidential candidate and a president stepped aside for his reelection for the first time since LBJ in 1968.
This makes it all the more important for us to be ready for anything, for any eventuality. We’ve got to be agile and nimble. We've got to constantly pay attention. You're the stakeholders. The best advocates and lobbyists DCUC has is you.
When I go to Congress I never say, ‘Please do something that’s good for credit unions.’ I say, ‘Please do this because it’s important for our members.’ Congress wants to hear that.
Hernandez: What’s the danger of opening the FCU Act to allow for non-member deposit coverage (by the NCUSIF)?
Stverak: It’s very simple: It puts the tax exemption at risk. It removes the exclusivity of the NCUSIF. It helps feed the bankers’ arguments. Our friends at the ICBA are already out there using it as an argument as we begin discussions around the end of the Trump tax cuts and what will be and will not be included in next tax package. The Ways and Means staff have told us, ‘Hey, you’re part of the discussion now. You’re back on the table.’ These little paper cuts begin to undermine the foundation we have for our tax status.
Hernandez: How has the climate on Capitol Hill changed toward credit unions?
McKechnie. It’s not great news. I’ve been an advocate for credit unions since the late 1980s. Republicans always liked credit unions, but they also had a natural sympathy toward small banks, whereas Democrats liked the cooperative nature, the little guy thing. I have noticed this year there has been a bit of an erosion for credit unions on the Democratic side. I think some are disappointed and upset about some of the negative coverage around credit union lending practices and overdrafts—which is kind of unfair, because we’re not the only entities that charge ODs.
It all kind of crystalized for me at a House hearing in May when a member of Congress had a dialogue (during a hearing on the CFPB) and he talked openly for first time in my 37 years about credit unions being subject of CRA. Later, one Democratic staffer on the committee came up to me in the hallway and kind of sarcastically said, ‘Remind me again why credit unions are different than banks?’ That got my attention and not in a good way.
Stverak: I hear many on the Republican side asking ‘What did you do to piss off the Democrats?’ There isn’t a natural defense of credit unions coming up from some former natural allies we’ve had.
McKechnie. I’m not trying to be overly pessimistic. But I think we need to roll up our sleeves and remind people why we have a tax exemption.
Stverak: (Some see) an opportunity to take all this dirty laundry about credit unions and run that through the national press over and over again.
McKechnie: Sen. Elizabeth Warren (D-MA) introduced a bill last month that would have imposed CRA-lite that seemed to mimic what CRA does. She did it with an eye, I think, toward sending a message to Congress or her corner of Congress that more should be expected of credit unions.
Hernandez: That bill is not expected to pass. But have we seen some sort of acceptance of these ideas?
McKechnie: It’s not going to pass, but bad ideas hang around in Congress.
Stverak: The way DC works is you don’t pass a bill in one session. You introduce it and expect it to pass in six years.
Hernandez: Could we have changing leadership on the Senate Banking Committee?
Stverak: If you look at how the Senate Banking Committee on the Democratic side could roll down, if (Sherrod) Brown out of Ohio loses and (Jon) Tester out of Montana loses, and with (Robert) Menendez going to jail, the choices for leadership are (Rob) Warner from Virginia and (Elizabeth) Warren from Massachusetts. Warner is unlikely to give up another current chairmanship, so that leaves Warren. Now you have someone who is directing legislation and that bad idea becomes a lot more of a boulder rolling downhill.
McKechnie: We have some control over our destiny by doing the right thing for our members. I believe in credit unions. I believe we’re the best deal for consumers. But I think we need to redouble our efforts to highlight the right things.
Hernandez: Any final thoughts?
McKechnie: I think we might have a bona fide challenge to the tax exemption. As Jason alluded to earlier, you have all these Trump tax cuts from 2017 that are going to expire, so there's going to be a tax bill next year on the table. What our adversaries on Capitol Hill say kind of goes in one ear out the other, but what our friends are saying is something that's getting my attention.
With some of our credit union friends who generally get the idea that our tax exemption is valid, importantly, some of them are saying, ‘Well, you guys have got to keep an eye out on some (of what the banking industry is saying).’ With these transactions where credit unions are purchasing banks, which rub some people the wrong way, I think we can explain why it's not a bad thing, but it's it takes some work. What I'm saying is that some of our people who are friendly are now saying we might have to roll up their sleeves and work to explain our tax exemption.
I still think we've got a great argument, that doing away with the tax exemption is like raising taxes on about 120 million Americans. But the banks have gotten a different reception in recent months than they used to.
Stverak: That’s why it's so incredibly important you're here. Most members of Congress don’t like to get into a whole lot of details. They want to know what are you doing to help their constituents, to help them get access to credit, to make their lives easier and better.