Analysis: Banks 'Wasting Time' On Credit Unions
It's the dirty little secret of bank lobbying: credit union bashing is a waste of time.
Years of pounding on the nonprofits have yielded little headway. In fact, the banking industry's big Supreme Court victory limiting credit union expansion was reversed by Congress in 1998 and policymakers all the way up to President Bush routinely vow to preserve their tax-free status.
"It's not only no progress, but we've actually lost ground," said Bill McConnell, the Ohio community banker who was the president of the American Bankers Association in 1998 when the industry lost the landmark fight on Capitol Hill.
John Forlines, the chairman and chief executive of Bank of Granite in Granite Falls, N.C., another veteran of the debate, said he "would have thought there would be times like now, when the budget needs balancing," that lawmakers would be hungry for an additional revenue source. "But that doesn't make any difference to these people in Congress, who adamantly think [credit unions] should continue not paying taxes."
McConnell conceded that most bankers are undeterred by the industry's failures. "This is the No. 1 issue, and it has been for 10 years."
So why does the industry continue to fight a battle that appears quixotic? "Our members understand the political situation, but trends in the marketplace are such that we have to take this issue on," said Edward L. Yingling, the ABA's executive vice president.
Alex Sanchez, CEO of the Florida Bankers Association, said, "It's unfair competition on an unlevel playing field, and it's got to end. Something's got to happen. Community banking, banking in general, cannot continue to exist" unless something changes.
Shift In Banks' Strategy
The banking industry has made a strategic shift in its lobbying. It now targets the largest credit unions, which they say are more like banks than the traditional smaller credit unions.
"Our major concern is really these mega-credit unions," said Camden Fine, president of the Independent Community Bankers of America. "They really have an unbridled field of membership...and they want more bank-like powers-like unrestricted commercial lending powers, a wider range of both asset liability product offerings, and entry into the securities and trust business-but not the obligations of regulation and taxation.
"We have no problem with the credit unions that adhere to the single common bond and provide the services for which they were originally created," he said. "And we would have no problem with the large credit unions if they adhere to the regulatory and tax codes that commercial banks have to adhere to every day."
In a similar vein, Yingling wrote a letter to the editor published in The Washington Post that argued unfair competition in the past decade has led to an explosion in the number of credit unions with more than $1 billion of assets.
Regardless of the policy merits, even some industry insiders say bankers are wasting their time and money on a fight they cannot win. "They are tilting at windmills," said a retired bank lobbyist, who, like other industry sources interviewed for this story, did not want to be identified. "You can turn off staffers and members so that when you really do need them, they won't be there for you.
"I don't know why bankers want their trade groups spending money on an objective that is admirable, but not attainable," the retired lobbyist said. "They should go after things that are far more important and things we have a fighting chance to win."
Congressional aides on both sides of the aisle said it is politically impossible to curb credit union membership or make them pay taxes. "Everyone just rolls their eyes when the bankers come in to talk about credit unions," said one staff members. "The credit unions are the white hats. Who's going to go against them?"
A longtime House Financial Services Committee aide agreed. "There is no appetite on Capitol Hill to change the tax status of credit unions," he said. "I would hope bankers are not na?ve enough to think that this is political reality."
Another staff member said bankers "do not have a legitimate argument" on this issue. "To just complain it's 'unfair' is not enough. The industry has to be able to show that the credit union tax exemption causes bankers harm."
He said lawmakers ask bankers how they are hurt-are they not making money? Do they not dominate their markets? When bankers say that they are making record profits and that CUs have only a small share of the market, the lawmakers are less than impressed, he said.
Rep. Barney Frank (D-MA) was more understanding. "It's a hard fight for them, but it's not wasting political capital," the top Democrat on the House Financial Services Committee said in a recent interview. "Frankly, you do not use up political capital when you lose. In some ways, you build up political capital. If you go and ask someone to do something is very important to you, and the person doesn't do it, that doesn't deplete your capital."
And industry officials insist they are gaining traction. They take heart in the fact that Federal Deposit Insurance Corporation Chairman Don Powell-a former community banker-has broken with the Bush administration and said credit unions should pay state and federal taxes.
But their real hope lies with House Ways and Means Committee Chairman Bill Thomas (R-CA) who said early this year that he plans to study the broad topic of tax-exempt entities, including credit unions. "The fact that he even said we would have a hearing on this issue is earth-shattering," said the FBA's Sanchez.
In fact, Rep. Thomas did not say he would hold a hearing, and his spokeswoman last month said that his staff is studying the issues and has no deadline yet for presenting the findings to committee members, who then "will make a decision if there will be hearings and on what subject."
Asked if the Florida Bankers have contacted Rep. Thomas yet, Sanchez said no. Nor has he contacted either of the two Florida members of the committee.
So what's the banking industry's strategy? "Bankers are going to have to be more aggressive, going to Washington, meeting with their lawmakers," Sanchez said. "If we don't do that, we're whistling in the wind."
Bankers Say Strategy Is Paying Off
Yingling of the ABA said the new tack of going after the largest credit unions is paying off. "Compared to where we were a year ago, we are making progress," he said. "There is some change in attitude on Capitol Hill. Members are more receptive to the discussion. A few years ago they would say, 'This is not an issue we're talking about.' Now some are saying 'We recognize that credit unions are doing things Congress did not intend them to do.' "
Fine said ICBA got a similar reaction when 300 members, wearing large white buttons declaring, "Enough is Enough" delivered the anti-big-credit union message on Capitol Hill last month. "Many members were sympathetic to the argument about these big, mega-credit unions," he said.
While neither Yingling nor Fine would name these receptive members of Congress, many policymakers go out of their way to be on the record as defending credit unions.
Both President Bush and the presumptive Democratic presidential candidate, Sen. John Kerry of Massachusetts, have put their support in writing. Even banks' traditional strongest advocates in Congress-the chairmen of the Senate and House financial services committees-are no help. "I am not for taxing credit unions," said Senate Committee Chair Richard Shelby. House Financial Services Committee Chairman Michael Oxley (R-OH) ducked the question in a recent interview and noted happily that the tax-writing committee has jurisdiction over that hot-button issue.
"I tell them I have got my own jurisdiction here, and I am not going to be playing in that sandbox," Oxley said.
If bankers are ever to persuade Congress to tax credit unions, they may need a little help from the CU industry itself. Congress might be prodded to act if a large CU had a major problem, either insolvency or some sort of financial scandal. Lawmakers also might be moved if the industry split into factions, with small credit unions joining community bankers against the big credit unions.