Trade Group Execs Sound Off On Conversions, UBIT

Register now

Representatives of three major credit union trade associations are suggesting the move by many CUs to federal charter is wrongly motivated, are in disagreement on share insurance, but are in agreement on the UBIT issue.

CUNA President Dan Mica, NAFCU President Fred Becker, and acting NASCUS President Mary Martha Fortney told credit unions attending the Defense Credit Union Council's annual meeting here that the big issue before all three groups are efforts by banks to tax CUs at the state level, and how credit unions are reacting.

Panel facilitator Robert Hoel, executive director of the Filene Research Institute, noted that bankers are attacking credit unions, and asked the panel if bankers are winning.

According to Becker, the bankers are going to have to "readjust" on the state level.

"A lot of people are saying the bankers won in Utah. But in the larger picture, they lost," said Becker. "Many credit unions are undergoing a conversion to a federal charter. So, the other states will realize they tried to gain revenue by taxing credit unions, but lost revenue instead."

Fortney said she believes the bankers are not an immediate threat, but added, "The credit union community needs to remain aware. Taxation is going to be with us, and it will keep coming."

Mica's first response was to correct what he said was a blanket statement that credit unions don't pay any taxes. He then noted that several banks might face federal investigations for their participation in tax shelters, a story first disclosed by The Wall Street Journal.

After polling the audience-and finding roughly two-thirds of the attendees were from CUs with federal charters- Mica warned that if every CU converts to a federal charter, it will create new opposition in state capitals. "If you are a state governor and you are told you can gain revenue by taxing credit unions, you are going to be very unhappy if those credit unions convert from a state charter to a federal charter," he asserted. "You are going to go to Washington, D.C., and rail against credit unions and demand something be done. We see more and more credit unions converting to a federal charter for the wrong reasons."

Mica suggested that it is credit unions' strength in Washington, where a considerable lobbying presence has been built, that is causing the banking industry to attack on the state level.

Private Share Insurance Issue Raised

In response to an audience member's question about private share insurance, Becker said NAFCU's position remains that all credit unions should have federal insurance.

"(Federal Reserve Chairman Alan) Greenspan has questioned if private share insurance is an economically sound system. There is a lot of rhetoric on this issue," he said. "If there was a failure, it would put credit unions in a bad position with Congress and the banks."

But NASCUS' Fortney countered, "Eighteen states have authorized private share insurance, and nine states have it. The Ohio regulator is a member of NASCUS' board of directors. NASCUS promotes the choice. If your state allows non-federal insurance, it is on you to do your due diligence. It is a states' rights issue."

Ohio is home to American Share Insurance, the largest provider of private share insurance.

Mica said a recent survey showed more than 90% of CUs wanted the choice, but only 2% actually wanted private insurance.

In response to another question from the audience, Mica declared the issue of unrelated business income tax (UBIT) "a top priority."

"Credit unions should check with CUNA first, because credit unions in different states are agreeing that different things are taxable - this is dangerous for credit unions," he said.

According to Fortney, "This is one area where there needs to be a lot of interaction with all of the trade associations."

Becker said NAFCU pays taxes on the advertising that goes into its magazine because it is unrelated to the purpose of the trade association. "Unfortunately, the IRS has taken a very narrow view of the term 'purpose.' In some cases, it is taxing ATM fees."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER