By Ray Birch
WASHINGTON—The banking industry is stepping up its attacks on the credit union tax exemption in both state legislatures and in Washington, and analysts believe the heavy assault will only continue, especially at the state level.
As CUToday.info reported, Senate Finance Committee Chairman Orrin Hatch (R-UT) sent a letter to NCUA Chairman J. Mark McWatters that questions the validity of credit unions' federal tax exemption. At the same time, bankers in Iowa have launched a multi-media campaign that includes television ads that argue the average working Iowa family pays more in taxes than the “big credit union” enjoying its “free ride.”
The new bank attacks are coming just three weeks before thousands of credit union representatives arrive in Washington for CUNA’s GAC.
Sources who spoke to CUToday.info on the condition of anonymity indicated that what may have led to Hatch’s letter is disappointment by bankers in Utah over the inability of the banking lobby to get the CU tax exemption eliminated in the new federal tax bill. Those same sources believe bankers then persuaded Hatch to send the letter, which states “the credit union industry is evolving in ways that take many credit unions further from their original tax-exempt purpose.”
Ryan Donovan
Those same sources, speaking on background, also reminded that numerous leaders in the banking industry, including the president of the Utah Bankers Association, Howard Headlee, have been unhappy that McWatters is on the short list to become the new director of the CFPB. They surmised that is what may have led to Hatch sending the letter to McWatters.
In his letter, Hatch points to NCUA’s moves in recent years to relax field-of-membership constraints, to a decision to consider the use of alternative capital, and to permit expanded business lending. “While these may be worthwhile pursuits, they should give us pause and cause a reflection on the core mission of credit unions and their tax-exempt purpose,” wrote Hatch.
'Disappointing Letter'
John McKechnie, a senior partner at the Washington, D.C.-based public policy and advocacy firm Total Spectrum, said that Hatch’s letter is “disappointing, but it also provides NCUA—and the credit union movement—with an opportunity to set the record straight on several things: Like how credit unions earn their tax exemption every day by providing fairly priced financial services. Like why credit unions don’t need to apologize for trying to serve more consumers. And, like how NCUA has a responsibility to ensure that credit unions evolve along with the marketplace by keeping their regulations up to date and relevant.”
Carrie Hunt
McKechnie said that ultimately, Hatch’s letter should remind credit unions that, even though they “won a great victory in preserving the tax exemption in last year’s landmark bill, they can never sleep on this issue.”
The letter from the Hatch comes even though credit unions and CUNA have had a good relationship with the Utah senator, said CUNA Chief Advocacy Officer Ryan Donovan.
“He has asked NCUA some questions, but I think as the Joint Committee on Taxation has reaffirmed several times and Congress reaffirmed most recently in the tax law that was just enacted, credit unions are fulfilling their mission to promote thrift and provide access to credit for provident purposes, and that is one of the reasons they remain tax exempt.”
But even with that reaffirmation, CUNA’s Chief Political Officer Richard Gose does not see bankers letting up.
“The bankers’ attacks will continue, and they won’t go away,” said Gose. “The states are a place where bankers can play, given many of the states’ budget concerns. Also, in states where there are a large number of banks, they can amass a campaign and sustain it. We have seen this in states like Iowa, Utah and Illinois. They advertise and they are doing more research. They have gained sophistication the last few years. Wherever there is a chance to tax credit unions, the bankers will be there.”
Bank Tax Windfall
NAFCU EVP/General Counsel Carrie Hunt pointed out that the bankers’ latest attacks on credit unions are coming right after securing a big windfall in the recent tax overhaul. As CUToday.info reported, Hunt and another analyst emphasized that the reduction in the corporate tax rate under the new tax law will fatten profits, some of which will be used to make investments that will lead to greater competition for credit unions, including in loan and deposit pricing.
Scott Wilson
“The reality is the banks just got a big tax break, and I hope they take that money and start serving their customers better,” said Hunt. “But they don’t have an obligation to do so. And credit unions, as not-for-profit member-owned cooperatives, provide the best value and service to their members.”
Turning to community banks’ actions at the state level, Hunt questions why community bankers aren’t targeting big banks instead of credit unions.
“The big banks, in reality, are their biggest competitors,” she said. “Banks need to work on their own industry and provide the best service they can to consumers. I know we are in a much more competitive environment today, but I beg to differ that credit unions have any unfair advantages. Credit unions are limited when compared to banks. Ask banks if they think credit unions have it so great, then why don’t banks convert to credit unions. Ask them that and you will hear crickets.”
Hunt added that NAFCU is looking forward to the response from NCUA to Hatch so “we can put some of these questions to rest.”
CUs Take Risks For Members
Scott Wilson, CEO at the $537-million SeaComm FCU in Massena, N.Y., told CUToday.info that it’s unfortunate that when bankers attack credit unions they leave out the credit union member perspective.
“As a credit union we take risks on for our members,” said Wilson. “We make decisions based on their FICO score and their character, as well. In particular, on loans. We have members who have a need for a $500 loan, which many larger financial institutions won’t make due to the fact that $500 loan is a cost, when you take into consideration all the servicing that goes into collecting it. We also provide our members a place for their monthly deposit and give them a way to cash checks at no cost. We have taken on mortgages that were in foreclosure at another financial institution. We believed in our members’ story and were willing to take the additional risk.”
As far as the credit union “profits” bankers attack, Wilson reminded that those remain with the credit union.
“We use those profits to keep our rates reasonable and fees low, invest in technology and more robust products and services that are available to our entire membership,” Wilson said. “We also ensure that when a fee is charged it’s appropriate. When our members make mistakes, we give it back to them. Our very liberal refund policy ensures that the mem
Greg Smith
bers who own us are treated fairly. Last year, we refunded more than $174,000 back to our members who asked us to do so for a variety of reasons, including they simply made a mistake.”
Wilson said he is always aware of the banker threats toward the CU tax exemption and knows that every credit union in the country can tell a story about how it has had an impact on its members. He said it is critical that credit unions and their members continue to speak with legislators so they “truly understand what is happening back in their districts at their credit unions.”
CU Value Made Clear
In Harrisburg, Penn., Greg Smith, CEO of the $5-billion Pennsylvania State Employees CU, called Hatch’s letter “distressing,” noting he will be making his credit union’s value clear to state leaders soon.
“Speaking only for PSECU, I am certain that the value we provide our members each and every year far exceeds any benefit that taxation of the credit union might provide,” Smith said. “We’ll be meeting with our legislators later this month at CUNA’s Governmental Affairs Conference to make that point.”