WASHINGTON — Tom Dorety had been the Credit Union National Association's chairman for just a month when the Treasury Department delivered a bombshell: Its blueprint for financial services reform would strip large credit unions of their income tax exemption.
The 33-year industry veteran can barely contain his disbelief, let alone his anger, that large credit unions should be treated any differently than small ones.
"I'm tired of this. I'm really tired of this idea that there's a new breed of credit unions," Mr. Dorety said in an interview.
He has led Suncoast Schools Federal Credit Union in Tampa for a dozen years. His credit union, founded in 1937, has $6 billion of assets, making it the nation's seventh-largest.
"The fact that we've gotten bigger makes us no less of a credit union," he said. "What we've done is be successful. What we've done is provide services to our members."
As is the case with banks, "it's all about growth," he said. "It's all about size. It's all about efficiency. … To become more efficient and to be able to provide more products and services is crucial. If we don't do that, we're going to die."
Mr. Dorety argued that the fate of small credit unions cannot be separated from larger institutions, which provide them with services and lobbying help. Eliminating their tax break would obliterate the industry, he said.
"If you keep smaller credit unions around because they're nice and small and they serve a select group of people, it's irrelevant," Mr. Dorety said. "They depend on large credit unions to help them."
The quick-witted 57-year-old criticized banks for oversimplifying the battle between the two industries. He also argued that credit unions are better equipped than banks to lend during a crisis, and he said credit unions that convert to mutual banks are "stealing from the membership."
Despite the Treasury plan, released March 31, Mr. Dorety said CUNA would continue to lobby for legislation that would expand the credit union charter.
A bill pending in the House would increase a cap on business lending to 20% of a credit union's assets, from 12.25%, and it would authorize the National Credit Union Administration to replace a rigid capital-to-assets ratio with a system that would link capital requirements with the riskiness of an asset type.
"A government-backed security is treated the exact same as a credit card loan today. That's silly," Mr. Dorety said.
But Keith Leggett, a senior economist for the American Bankers Association, said the legislation would establish a banklike model for credit unions, and he objected to giving the NCUA risk-based capital authority.
"What they really want to do is be able to engage in all of the activities of a commercial bank, and even more," he said. "With that tax benefit comes limitations. They just don't like the fact that there are limitations associated with that."
Prospects for the legislation, or a less-ambitious version, are uncertain, even though Democrats are widely supportive and the CUNA recently won an important ally when the National Association of Realtors applied to charter a federal credit union.
(The stripped-down bill would increase from 1% to 3% how much a credit union could invest in a service organization and ease field-of-membership restrictions in underserved areas.)
At a March 6 hearing, Bradley Rock, the ABA's chairman and the president and chief executive of Bank of Smithtown in New York, said expanding the credit union charter — while not removing the tax benefit — would feed the "new breed" of larger credit unions.
Mr. Dorety, who also testified that day, said Mr. Rock's testimony made his blood boil.
"When bankers and trade associations talk about the new breed of credit unions, it's kind of like any Republican talking about a liberal," Mr. Dorety said. "It's incredibly negative. It's as if it's the worst thing in the world, and we're supposed to be embarrassed by being a new breed of credit union."
He says that he "grew up" while working for Jim Blaine — the industry firebrand and chief executive of North Carolina State Employees Credit Union — and that nothing about credit unions' core structure has changed.
Suncoast was established "by a bunch of schoolteachers in Hillsborough County with a couple thousand dollars in assets as a not-for-profit collaborative with a volunteer board of directors," he said. "Today we're a not-for-profit collaborative with a volunteer board of directors. Our structure has not changed one iota."
Mr. Leggett said the tax-exempt status should be reserved for small credit unions that focus on community development. "Banks have been more supportive of community development credit unions that really adhere to the whole purpose of credit unions — of serving people of modest means."
But Mr. Dorety is just as adamant on this point: "You can't just serve people of modest means and do a good job." For instance, Suncoast supports its branches in lower-income neighborhoods with deposits it gathers in wealthy suburbs of Naples.
Though he conceded that some credit unions made "dumb decisions," including out-of-state institutions financing real estate projects in Florida, he rejected the notion that the NCUA has been too light on the industry, and he said credit unions are in the position to keep on lending as others pull back.
"We should be in an environment now where it's in the best interest of this country, it's in the best interest of consumers, to have access to as much credit as they can get, and at even … fairer rates," Mr. Dorety said.
"I don't have to stand up with a group of investors every quarter and say, 'We didn't hit our numbers this quarter.' … We can go through a period of time where our net income isn't what it should be. A bank can't do that. They have to lay off people. They have to close branches. They have to cut services," he said. "I have a great ability not to do that, but I would like more."
