The three major challenges credit unions will face in 2004 are the threat of taxation, interest rate risk, and the disappearance of small credit unions, according to NCUA Board Member Deborah Matz.
Speaking before the American Association of Credit Union Leagues here, Matz suggested some strategies for dealing with each.
"My perspective as a regulator is that taxes will cut into credit unions' retained earnings," which could trigger Prompt Corrective Action and deter credit unions from branching out to serve their members or reach out to underserved areas, she said. "Many lawmakers see the cooperative structure as one reason credit unions are not taxed, but they also see that some co-ops are taxed. Credit unions exist to fill a void left by other financial institutions. When credit unions reach out to their total fields of membership, they give lawmakers a reason to maintain the tax exemption."
Similarly, Matz suggested that when credit unions offer a broad array of services to their members, they give lawmakers even more reason to maintain the tax exemption. Credit unions must consider offering home mortgages, risk-based lending, financial literacy programs and member business lending not simply because members want these things but because it helps forward the credit union cause, according to Matz.
"It's the right thing to do, and it's good business, and it can help preserve the tax exemption for credit unions," she offered.
The same holds true for helping small credit unions continue to thrive instead of allowing them to vanish. "Small credit unions serve niche markets. Sometimes they are the only insured financial institution in their area," Matz advised. "For many members of Congress, the small credit union is the icon of the movement, and if they disappear, then that puts the tax exemption at risk."
While NCUA can do its part by continuing to ensure its policies and procedures aren't overly cumbersome to small credit unions and help develop a good environment for small credit unions, Matz said she believes the state leagues are in a position to do just as much, since small credit unions often must depend on their leagues for crucial support.
