Just as one Utah credit union immediately began proceedings to convert to federal charter after a bill inimical to state-chartered CUs became law there, credit unions in Iowa say they may also need to convert to federal charter if a bill to impose a new tax on credit unions is passed.
The Iowa CU lobby still hopes to derail a bill that would impose a tax on large, state-chartered credit unions, but in a state where there are no federal charters-indeed, Deere Community Federal Credit Union recently converted to Deere Community Federated CU under a state charter-some of the largest CUs said they will have to consider converting to the federal charter if the new bill becomes law.
"I still think we can beat this," said Bob Hoefer, CEO of Dupaco Community CU. "But this (battle) is about as serious as it's ever been in my 38 years in credit unions. It's definitely a full-court press. If the bill makes it through, we'd have to really look strongly at changing our charter."
Hoefer told The Credit Union Journal that if it comes to that, Dupaco will also consider other options, such as chartering in another state (it has operations outside Iowa), as well as the federal charter.
The story was much the same at John Deere Community CU, Waterloo, Iowa. "We will have to take a serious look at converting," CEO Jean Trainor told The Journal. "I would hate to do that, but we would have to consider it."
But credit unions here are reluctant to get bogged down in chartering questions while the battle against the bill is still being waged. "(Charter conversion) is a premature discussion at this point, as far as I'm concerned," said Rick Benhart, CEO of Collins Community CU, Cedar Rapids, Iowa. "But there will be some discussion if the bill gets through. At this point we need to focus on what's in front of us. We're working very closely with the league, asking staff and membership to help us educate our legislators."
Indeed, a number of Iowa credit unions have been reaching out to members though statement stuffers, phone calls, in the lobby, you name it-and not without results.
Approximately 1,000 credit union supporters-many of them members in addition to employees and volunteers-came from all across the state to rally at the statehouse and let lawmakers know there is great opposition to this bill.
But the very next day, the bankers also staged a rally, gathering about 500 bank supporters for the same purpose, and apparently to some effect. The CU lobby had believed the bill was going to die in committee, but lost the pivotal eighth vote required to kill the measure at the last minute.
In a state where, until recently, there was only one federal charter, how did it come to this?
While the bankers have long been simmering over the CU tax exemption in Iowa, this session of the legislature offered a number of opportunities for the banks to seize, according to credit unions. Chief among them was University of Iowa CU's bid to buy a small community bank that was struggling. The CU had hoped its plan would keep the bank, which would have been merged with the CU, locally owned, rather than sold to out-of-state interests.
Not only did the state regulator call a halt to that action, but the CU's bid may have been the final spark igniting the bankers' ire, some have suggested.
"It certainly raised the bar of bankers' awareness of how successful credit unions have been," Hoefer observed. "No banker ever thought it could happen, that a credit union could buy a bank. And you know, if it had happened, it wouldn't have been the end of the world for banks. But if a tax is put on us, that is the end of the world for credit unions."
The issue attracted the legislature's attention for another reason: 33% of the legislature turned over due to redistricting, and while CUs had already started reaching out to members, they hadn't gotten very far into the relationship-building process.
"We've probably got to blame ourselves on that, Hoefer said. "We got caught by surprise. We got caught short, we hadn't done our homework on the new legislators. And we found out that hard way that we had a number of bank- friendly candidates who won."
But it wasn't just the credit unions that were surprised: even the legislative leadership had a few things to learn. "The leadership changed as well, so when we went to the leaders and asked 'What does your caucus say," they had to say 'We don't really know where the people stand,' " Hoefer explained. "We need credit union people to run. We need to be aware of who's running. It seems like we had some retired bankers who were put up to running. We need to look at that."
Utah CUs Can't Wait
There is still hope that the bill won't make it through in Iowa, but credit unions in Utah were not quite so fortunate. Though they staved off a tax provision by agreeing to a two-year study on the taxation issue-a move that some observers suggest merely delays taxation of CUs-the compromise called for the elimination of all member business loan activity at the state's largest three credit unions beginning May 5.
Mountain America CU hopes to have a federal charter before the bill is enacted, according to David Kwant, CFO. The CU's board has already approved exploration of a charter conversion and hired a consultant to guide MACU through the process. "Unless NCUA comes back with a really restrictive charter, then that's what we're going to do," Kwant told The CU Journal.
The catch is that MACU is neither a community nor a SEG-based charter at present; it's a hybrid of the two. For speed's sake, the credit union will seek a SEG-based federal charter. "There's a community charter pending out here right now; our grandchildren will be running the credit union by the time that thing gets approved," Kwant commented. "Our SBA (Small Business Administration-guaranteed) loan program just started up, so not offering member business loans simply isn't an option."