The California Bankers Association is saying it has no beef with small credit unions. But it does plan to continue its efforts to tax what it is calling the "mega" credit unions, a spokesperson for the group told The Credit Union Journal.
That position, the bank trade group said, is exactly what its members want, in spite of criticism from the California Credit Union League that the California Bankers Association (CBA) is out of step with its own membership.
The California league criticized the bank group in early July, saying the results of a survey of community bankers taken earlier this year by the American Bankers Association showed they ranked CUs fourth as business banking competitors, behind large banks, other community banks and broker-dealers. Community bankers ranked CUs third among competitors for consumers.
"When they're trying to rally their troops or win concessions from legislators, bankers often suggest that credit unions are about to drive banks out of business," said California league CEO Dave Chatfield. "But in candid surveys, credit unions barely register on bankers' competitiveness radar screen."
"The conclusion we can draw from this contradiction is that bankers have some sort of philosophical objection to not-for-profit financial institutions they simply think that they shouldn't exist at all or they look at bashing credit unions as a good way to divert attention from the conflicts between large banks and community banks, and attempt to keep the banking industry unified before Congress and state legislatures in their battles with mortgage companies, brokers and realtors," he added.
Not so, replied CBA spokesperson Anissa Yates. "It is not surprising that community banks don't list credit unions as competition," she said. "It has never been the position of the California Bankers Association that community-based credit unions are the problem."
"The problem," Yates continued, "is credit unions that have moved well past the initial reasons for credit unions being founded. We are looking at ways to address tax inequities between banks and what we call 'mega' credit unions. These are credit unions that have $1 billion or more in assets which is far larger than anyone thought credit unions would become, credit unions that have no discernable field of membership requirement and those conducting commercial business."
'Hypocrisy is Rampant'
Yates' remarks drew a heated response from Chatfield, who declared, "The hypocrisy of the bankers is rampant and obvious."
In recent years, Chatfield said, numerous banks have converted to tax-free status under Subchapter S of the Internal Revenue Service code. Currently, banks with 75 or fewer investors can convert to Subchapter S and pay no corporate tax. Bank trade groups are lobbying Congress to increase that number to 150.
"Banks have done reverse stock purchases to decrease their number of investors and get under the limbo bar to qualify for Subchapter S. And, they want to change the law so more banks can qualify," said Chatfield. "So the bankers associations have no problem with tax-free banks, just tax-free credit unions."
Not the Job of Bankers
Furthermore, he said, it is not the job of bankers to say what a CU should be in terms of either asset size or FOM requirements.
"Credit unions that have become larger have done so because they are successful at serving their members and they should not be penalized. As for field of membership, credit unions started as community organizations that served wide geographical areas. They were not restricted to one company. It wasn't until the 1920s or '30s that it was found to be easier to organize credit unions around employee groups and this became fashion. Now, we're coming full circle."
Chatfield also disputed Yates' mention of CUs that are conducting commercial business, stating this is not a "new" phenomenon.
"Credit unions have provided small business loans to their members for decades. Business is increasing because banks are not providing this service," he asserted. "This is typical misinformation from banks. They are always whining about credit unions and they think they know what they are talking about, but they are totally off base. And I think Congress is getting tired of hearing them whine."
