A new study was released last week calling for the repeal of the federal tax exemption on the biggest credit unions-just as the banking trade association, the Independent Community Bankers of America, was launching its annual lobbying pilgrimage to Capitol Hill. As many as 300 community bankers could be seen wearing buttons declaring "Enough is Enough" with a red circle-and-slash over "Unfair Credit Union Expansion."
The study is really a study of studies, which is based on the recent GAO Report and other scholarly work by the Woodstock Institute and the National Community Reinvestment Coalition, and was conducted by Richmond, Va.-based economic researchers Chumra Economics & Analytics for the Thomas Jefferson Institute on Public Policy.
Though the study purports to be a balanced and objective work, it is deeply flawed. It concludes, for example, that credit unions' vast expansion was fueled by a new law, HR 1151, the CU Membership Access Act, that allowed credit unions to expand in new ways. This is untrue, as HR 1151 simply codified what NCUA had been allowing credit unions to do for 15 years, that is, add multiple groups to their core common bonds.
The study also purports that this "new" method of expansion is the major reason why the credit union movement has expanded so much over the past three years, a time when assets have grown by an astounding 40%. The researchers fail to cite that other federally insured depositories have also recorded rapid growth during this time, as consumers have fled the stock markets for the safety of federally insured deposits.
The study also cites the GAO Report and other documents to assert that credit unions are not abiding by their mission to serve the underserved. The GAO Report never really claimed that, only that there is little documentary evidence to show that CUs are serving the underserved.
Finally, it concludes that large credit unions should be taxed like community banks. While this would certainly help the banks, it doesn't explain how the average consumer would benefit, as those credit unions would almost certainly be forced to lower savings rates and lift loan rates to pay for the tax. Would banks then raise their savings rates and lower their loan rates to step into the void?
