Editor's Note: This opinion piece was originally written to the Des Moines Register by Patrick S. Jury, VP with the Iowa CU League, in response to bankers' criticisms of plans by an Iowa credit union to purchase a bank.
I've always taught my child not to put down someone else so he will look better. Wouldn't it be nice if banks could do the same?
Banks control more than 90% of the Iowa financial market, but continue to attack credit unions as "unfair competition." Strange when you realize the combined assets of all 175 not-for-profit credit unions in our state represent only half of the total assets of Wells Fargo's Iowa operations. Unfair competition, indeed!
Recently, an Iowa credit union made a legal bid to purchase the assets of a community bank. The credit union acted to keep the bank's ownership local instead of letting it be gobbled up by a national banking conglomerate that takes profits and ownership out of Iowa. While regulators did not approve the transaction, my hope is that another small, independent bank steps in to make the purchase so we don't lose another community financial institution to a banking behemoth.
For The Record, CUs Do Pay Taxes
When this bid was announced, legislators asked whether it was appropriate for a credit union to purchase the assets of a bank. If policymakers are uncomfortable with this practice, we'll work with them to resolve it. Although the proposed transaction was unique and not approved, bankers have used it as one more opening to raise taxes on credit unions and their members.
Contrary to what bankers say, Iowa credit unions do pay taxes. Just like banks, our state-chartered credit unions pay property, sales and employer-related taxes. In addition, Iowa law requires them to pay a tax on reserves known as a "moneys and credits" tax, while banks pay a franchise tax on their net income.
Congress and state legislatures have made this tax distinction for a simple reason: credit unions are not-for-profit, member-owned financial cooperatives that return earnings to members in the form of lower loan rates, fewer fees, higher returns on savings, bonus dividends and expanded services. Banks, on the other hand, continue to generate record profits that get passed on to their stockholders.
Credit unions also are required to hold a certain percentage of their assets as retained earnings to ensure safety and soundness. The bankers' proposal to increase credit unions' taxes will result in less retained earnings and damage our ability to remain safe and sound. Banks can simply sell more stock to increase their capital.
'The Only Real Alternative'
As the only real financial alternative to the for-profit banking industry, credit unions will fight to protect consumers' right to choose by defending our not-for-profit tax structure. Credit union competition, as small as it may be, is the only way to guard Iowans against even more outrageous bank fees.
Here's something else the banks won't tell you. If they succeed in increasing taxes on Iowa's credit unions and our nearly one-million members, it could actually reduce revenue to our state. How? Credit unions could choose a federal charter to maintain member benefits. Along with their change in charter, nearly $1,000,000 in lost state revenue could follow. Bankers are less worried about Iowa's economy than about profit and market share. This is further evidenced by the fact they are working to make their ATM surcharges exempt from taxes. Banks want to fee Iowans, yet don't want to pay sales tax. I call this selective support for Iowa's economy.
Banks say they want a "level playing field." Credit unions agree. We propose that banks be taxed like credit unions and comply with all of the restrictions of our cooperative structure. For instance, banks would have to become non- profit institutions and turn over ownership to their customers. Banks would be restricted from issuing stock and could only build capital by reserving earnings. They would have to give each depositor one vote in the election of unpaid, volunteer board members. They also would have to stop offering trust services, severely restrict commercial lending, limit their investments and restrict whom they can serve as customers. Big salaries and stock options for bank CEOs would have to go. So would the record profits passed on to stockholders. Finally, banks would have to put people before profits-where character, not just a credit score, establishes a valued relationship.
As Iowa examines tax policy, we need to ask whether bankers truly want a level playing field, or simply just want to put down the competition in order to make themselves look better.
Mr. Jury can be contacted at the Iowa league at P.O. Box 10409, Des Moines, IA 50306, or via www.creditunionpartners.com.