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Ignore the rhetoric from both sides on the issue. The odds that the business lending bill will be enacted this year are significantly slimmer than they were just last week.
April 24 -
In a win for the banking industry, Sen. Charles Schumer says that the business lending measure is not likely to be considered until at least the second half of the year, dimming its chances of enactment.
April 23
Now that a proposal to give credit unions more business lending power has been tabled, banks and credit unions have resumed their long-running battle over taxes.
The banking industry fired the first shot Monday, when the Independent Community Bankers of America sent a letter to a House Ways and Means subcommittee urging it to consider eliminating credit unions' federal tax exemption. The Subcommittee on Oversight is holding a series of hearings reviewing tax-exempt organizations and ICBA President and Chief Executive Camden R. Fine said a review of credit unions' tax status is "warranted more than ever" as credit unions become harder to distinguish from "taxpaying" banks.
"Today's credit unions have no meaningful 'common bond' among members, and many make multimillion dollar loans to fund shopping centers, condo developments, and other speculative commercial projects," Fine wrote in a letter to subcommittee Chairman Charles Boustany, a Louisiana Republican. "Having already strayed far from their original tax-exempt mission — serving people of modest means with a common bond among them — the credit unions are now aggressively advocating legislation that would further expand their commercial lending powers as well as new authority to raise supplemental capital."
(Fine's comments were largely echoed by the American Bankers Association in a letter its CEO, Frank Keating, sent to Boustany Wednesday.)
The National Association of Federal Credit Unions struck back Tuesday, urging lawmakers "not to swallow the propaganda being spread by banks."
In a letter to Boustany, chief lobbyist Dan Berger pointed out that credit unions "are not making daily $2 billion trades like mega-banks" — an obvious reference to JPMorgan Chase's much-publicized trading blunder. He also wrote that hundreds of community banks have yet to repay the Troubled Asset Relief Program and that many have "no exit strategy on the table."
Berger pointed out, too, that nearly 2,400 community banks have avoided paying federal income tax by registering as Subchapter S Corporations. He said that banks' Subchapter S tax break was valued at $2.05 billion in 2010, more than the exemption for the entire credit union industry that year.
Banks and credit unions have been sparring for years over the tax exemption, of course, but the issue has taken a back seat of late to the battle over business lending. Credit unions' efforts to raise their business lending authority from 12.25% of assets to 27.5% have been fiercely opposed by the banking industry, which argues that credit unions do not have the expertise or resources to take on more business loans. Legislation that would have expanded credit unions' lending powers seemed to have strong support in both houses of Congress but it was unexpectedly tabled by the Senate last month.
Industry sources said that Boustany's subcommittee did not discuss credit unions in its first hearing on Wednesday and it is unclear if the subcommittee will take up the issue in future hearings.
Congress has not held hearings on the credit union exemption since 2005. The ICBA testified at that hearing and in his letter to Boustany, Fine said it raised serious questions then "about an outdated, costly and plainly unfair tax exemption.
"Seven years later, the topic remains urgent," he wrote.
