Utah's Banks, CUs Square Off At Debate On Tax Proposal

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Dozens of credit union executives packed a state Capitol auditorium in a face off with an equal number of bankers last week during an extraordinary legislative debate over the controversial proposal to tax the state's largest credit unions.

The debate, also attended by about 50 lawmakers and dozens of onlookers, served as a preview for what is expected to be a contentious legislative battle between the two sides over the controversial tax initiative supported by the bankers.

The unusual session, which was moderated by former Utah Chief Justice Michael Zimmerman, featured presentations by representatives of the bankers, credit unions, and the state's Department of Financial Institutions, all of whom took questions from lawmakers, according to Stephen Nelson, spokesman for the Utah League of CUs.

The decades-old feud between the credit unions and banks has come to a head in recent months here, where an estimated half of the state's 2.5 million residents are credit union members-one of the highest penetration rates in the country. Over the past year several credit unions have aggravated the feud by skirting state limits on member business lending by performing their business lending through subsidiary CUSOs they claim do not come under the state's credit unions rules. And last spring the credit unions and banks squared off in what proved to be the most expensive Republican primary ever for the state's open congressional seat, eventually won by credit union-backed Rob Bishop, who won the seat in November.

Rep. Jeff Alexander (R-Provo), chief sponsor of the tax bill, insisted during last week's debate that his proposal is necessary to stop the state's largest credit unions from unfairly competing with the banks. He was followed by Utah Bankers Association President Howard Headlee who asserted that large credit unions are violating a 1999 legislative compromise on field of membership by continuing to expand their markets and skirting the business lending limits, now subject of a court challenge.

That compromise resulted in a bill that reigned in the multi-county FOM powers of state-chartered credit unions, among the most liberal FOM rules in the country, and restricted credit unions to a single county. Three credit unions that had already invested in bricks and mortar in multiple counties, America First CU, Mountain America CU and Goldenwest CU, were grandfathered under the new law to allow them to continuing operating in several counties.

It is only those three credit unions, which are also challenging the business lending limits, that are targeted under Alexander's tax bill which would assess the state's 5% corporate franchise tax on credit unions over $100 million in assets and operating in multiple counties.

Edward Leary, chief of the Department of Financial Institutions, told lawmakers that credit unions have not violated the 1999 FOM law.

Scott Earl, president of the Utah League of CUs, told lawmakers if the tax bill is successful the millions of dollars assessed credit unions will come out of the pockets of the state's consumers. He suggested passage of the bill would also drive state credit unions to convert to federal charters, depriving the state of the hoped-for new revenues, as well as existing fees and assessments.

The tax bill, if successful, would just be the start of efforts to expand the tax to more credit unions, suggested Earl.

Travis Wood, chief lobbyist for the league, said they plan to testify at a hearing on the bill this week before House's Business and Labor Committee.

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