What would a CUNA GAC be without the bankers trying to rain on our parade?
The advertisements placed around town were not enough for the American Bankers Association; they also wrote Members of Congress encouraging them to ask credit union advocates four questions.
1. How much does the credit union tax status cost? And is there concern that recent NCUA actions will increase the cost of the tax status further?
The ABA cites the Treasury Department's Office of Tax Analysis 10 year cost of the credit union tax exemption, but fails to mention that the benefit credit union members and nonmembers receive as a result of credit unions is more than five times the amount of the exemption. The tax status is an example of tax policy that helps keep money moving through the economy. To the extent that the field of membership proposal and the member business lending rule results in credit unions lending more and offering more services to their members, then yes the "cost" will increase but so will the benefit because credit unions will be doing precisely what they've been designed to do.
2. How do you define your membership and why?
The bankers question whether "open membership" would undercut the purpose of the credit union tax exemption. First, the NCUA proposal removes from regulation requirements that are not required by law. The proposal, in our view, does not go nearly as far as NCUA could under the present law. But, let's dig a little deeper here. The concept of field of member and common bond was originally a tool to determine credit worthiness, developed a time when credit scores and other more sophisticated credit worthiness tools did not exist. Contrary to ABA's suggestion, field of membership has never been "the purpose of the credit union tax exemption." As we all know, the credit union tax status is based on credit unions' structure as not for profit financial cooperatives and their mission to promote thrift an provide access to credit for provident purposes.
3. Why does the industry need help from NCUA to promote business lending?
Really? The bankers really want Congress to ask credit unions this question? For the first 90 years of their existence in the United States, credit unions were subject to no statutory restriction on business lending. The statutory cap under which most credit unions operate today was a bone tossed to the banking industry during consideration of the Credit Union Membership Access Act. It has not economic or public policy rationale. Through its new rule, NCUA is removing from regulation requirements that are not in statute. The NCUA rule does not change the cap but it should make it easier for credit unions to remain competitive in the small business lending market. Small business lending is in credit unions' DNA; some of the earliest credit unions were formed to do this type of lending. Today, credit unions need Congress to remove the cap on small business lending; until that happens, NCUA's effort to provide regulatory relief will help credit unions serve their small business members.
4. Does the high number of credit unions receiving the low-income designation change the need for new powers?
The low-income status can provide a path to expanded business lending authority and access to supplemental capital, but it is not a replacement for a federal credit union charter that recognizes that the more credit unions are permitted to do by statute, the better off all consumers and small businesses will be. While NCUA has done a better job in recent years of letting credit unions know when they qualify for low-income status, it is often difficult for credit unions to know how they have qualified and what they need to do to keep the designation. That is why we have asked NCUA to make this process more transparent and more certain. Of course, a better alternative would be for Congress to eliminate these restrictions so that credit unions could focus on serving their members rather than meeting the opaque requirements of a black box algorithm.
Banker complaints about the credit union tax status are as frequent and regular as days that end in 'y'. They want Congress to think that they truly believe the tax status creates an unlevel playing field. But we all know that if the playing field was truly unlevel, banks would be converting to credit union charters in large numbers. That's not happening because bank shareholders like the deal they're getting and don't want to give it up for one member, one vote. It's not happening because banks exist to make money for said shareholders, and credit unions exist to promote thrift and provide access to credit for provident purposes. The structure and mission of credit unions is not only the driver of the tax status but it's what concerns bankers the most. They're scared to death of how credit unions might use their structure and mission to serve consumers and small businesses if fully enabled to do so because they cannot understand that the motivation behind the credit union difference is the people, not the money.
Ryan Donovan is chief advocacy officer at CUNA.
