Jekyl/Hyde CU Relationship With Banks Displayed To Congress

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WASHINGTON – The schizophrenic relationship between credit unions and banks was on rare display this morning with the two sides lobbying members of the House hand in hand to roll back parts of last year’s Wall Street reform bill–while simultaneously bashing each other before the Senate over the proposed increase in member business loans for credit unions.

The rare Jekyl-and-Hyde performance comes just days after credit union and bank executives visited many of the same congressional offices together to lobby against the cap on debit fees.

“When we can we work together we will,” is how Paul Merski, senior lobbyist for the Independent Community Bankers of America, which is leading the fight against an increase in member business loan limits, described their love-hate relationship with credit unions. He said community bankers remain adamantly opposed to raising the MBL limit because of the advantage the credit union tax exemption provides in lending.

Leaders of the ICBA and the American Bankers Association, both close partners with CUNA and NAFCU in the Electronic Payments Coalition fighting debit caps, were testifying this morning before the Senate Banking Committee against a proposal to raise the current 12.25% of assets limit on MBLs–which they successfully got enacted into law.

“Make no mistake about it,” said Stephen Wilson, chairman of the ABA and CEO of LCNB National Bank in Lebanon, Ohio, “(The MBL bill) is nothing less than legislation that would allow a credit union to look and act just like a bank, without the obligation to pay taxes or have bank-like regulatory requirements applied to them.”

Testifying beside them at this morning’s Senate hearing were representatives of their on-again/off-again partners CUNA and NAFCU, who were decrying the bankers’ hypocrisy on the tax exemption.

“What the banking industry conveniently forgets to mention,” said Michael Lussier, president of Webster First FCU in Massachusetts and chairman of NAFCU, “is that a large number of banks do not pay corporate federal income tax because of their Subchapter S status...What the banking trades don’t want you to know, is that one estimated value of the Subchapter S federal tax break for banks is $2.05 billion for 2010, which is actually greater than the estimated value of the entire credit union tax expenditure ($1.27 billion) for FY2010 as included in the President’s FY2012 budget message.”

Meantime, on the other side of Capital Hill, another NAFCU representative, Mark Sekula, chief lending officer for Randolph-Brooks FCU, was joining with ICBA and ABA representatives to urge the House Small Business Subcommittee on Economic Growth, Tax and Capital Access to roll back provisions of last year’s Wall Street reform bill.

The credit union executive joined the banking representatives in endorsing legislation that would water down the powers of the fledgling Consumer Financial Protection Bureau and also asked for elimination of a new provision that will require small business lenders to collect demographic data on borrowers, as they do for the Home Mortgage Disclosure Act, known as HMDA.









Appeals Court Is Last Chance To Block Fed’s Debit Rule


ST. LOUIS – Lawyers for Minnesota’s TCF Bank will tell a federal appeals court this morning that the Fed’s proposed cap on debit fees amounts to an unconstitutional “taking” of its assets, in a last-ditch effort by banks and credit unions to block the Fed’s final rule.


The $18 billion bank, formerly Twin Cities Financial, will ask the court in this morning’s oral arguments to overturn a lower court ruling an order a preliminary injunction to block the Fed from passing the final rule. TCF says the Fed’s December proposal would cut its $100 million a year in debit fees by as much as two-thirds.


Still, the court, the Eighth Circuit Court of Appeals, is not expected to issue its ruling fast enough to stop the Fed from approving a final rule, expected any day now. The Fed was cleared to pass the final rule after Congress declined last week to pass a credit union- and bank-backed delay in the rule.


The hearing was originally scheduled for the court’s St. Paul courtroom but has been moved to St. Louis to accommodate an overflow crowd.


Even as the appeals court deliberates the credit unions and banks are already studying a potential legal challenge of a final rule. Eric Richard, general counsel for CUNA, which is backing the TCF challenge, said he believes a legal challenge would be more effective after the Fed passes a final rule. “That’s why you really have to wait to see what the final rule says,” he told the Credit Union Journal yesterday.


Several sources said they think the Fed’s rule will be ripe for a challenge based on the Administrative Procedures Act, which requires regulatory agencies to follow certain procedures before enacting final rules. Among the questions are whether the language of the debit fees provision requires the Fed to enact a strict cap, as proposed, or simply restrictions allowing credit unions and banks to recapture “reasonable and proportional”costs.


The stakes in the fight are enormous, with credit unions and banks earning an estimated $20.5 billion in debit fees last year, $2.6 billion of it by credit unions.


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