TAX-EXEMPT CREDIT UNIONS
- ICBA urges Congress to end the unwarranted federal tax subsidy of the credit union industry.
- ICBA opposes expanded powers for credit unions, whether pursued by legislation or regulation, particularly the proposal to raise the cap on “member business loans” or otherwise expand commercial lending, as long as credit unions remain exempt from taxation and the Community Reinvestment Act (CRA).
- ICBA strongly rejects the National Credit Union Administration’s (NCUA’s) field of membership proposal which would effectively remove any remaining limitation on credit union membership. The proposal conflicts with NCUA’s statutory authority. NCUA’s encouragement of credit union mergers and conversions to geographic charters also undermines the common bond requirement.
- ICBA opposes legislation that would allow credit unions to raise supplemental capital, and in effect, cease being exclusively member-owned entities – a condition of their original tax exemption.
- ICBA supports applying CRA requirements to credit unions comparable to and with the same asset size distinctions as banks and thrifts.
- ICBA supports the right of credit unions to convert to commercial banks without bearing greater regulatory conditions than required for commercial bank conversions to credit unions. ICBA encourages credit unions seeking bank-like powers to convert to bank or thrift charters.
The credit union model has become outdated, and its charter, purpose and tax-exempt status should be reviewed by Congress. Credit unions were chartered by Congress to enable people of small means with a “common bond” to pool their resources to meet their basic deposit, savings and borrowing needs. While some credit unions operate that way today, the NCUA has enabled others to grow their membership and their markets well beyond their statutory mission. As a result, in just the last four years, the total assets of federally insured credit unions have grown by nearly $70 billion and membership has grown by more than 10 million, while the total number of credit unions has declined by over 1,000.
ICBA urges Congress to level the tax and regulatory playing field between community banks and credit unions. Bank-like credit unions should be subject to the same laws and regulations as banks – including taxation and CRA. Large, multi-bond and geographic-based credit unions have exceeded their statutory mission and use their tax-exempt, government-subsidized status to compete with taxpaying community banks.
Commercial Lending. ICBA vigorously opposes legislation to expand commercial lending powers of credit unions. Under the Federal Credit Union Act, credit union member business loans are capped at 12.25 percent of total assets. However, there are numerous exceptions to the cap. Small Business Administration loans, as well as any small business loans of $50,000 or less, are exempt from the cap. There is ample capacity for the vast majority of credit unions that are below the federally mandated cap to expand their lending with no change to current law if they choose to do so.
In addition, nearly 2,000 credit unions are now completely exempt from the member business lending cap as a result of the NCUA’s promotion of the low-income credit union designation. This authority should be amended to adhere to much more rigorous criteria and should sunset after a two-year period. Further, all credit unions exceeding $10 billion in assets should automatically be encouraged by NCUA to convert to a thrift charter.
Field of Membership. In November 2015, the NCUA proposed sweeping changes to its field of membership rule which would drastically expand the powers of tax-exempt credit unions beyond their statutory limits. The proposal would weaken numerous legal requirements designed to ensure credit unions remain focused on their fundamental mandate of serving people of modest means with a common bond. For instance, federal credit unions would be able to apply to serve much larger areas than metropolitan statistical areas or to include areas contiguous to their existing core-based statistical areas. Credit unions also would have a much easier time converting to community charters and expanding into larger geographical areas. ICBA strongly opposes the NCUA proposal.
Supplemental Capital. ICBA is adamantly opposed to legislation that would allow the NCUA to issue rules allowing tax-exempt, nonprofit credit unions to raise supplemental capital and, in effect, cease being exclusively member-owned (“mutual”) entities. Since their creation, credit unions have been mutual entities that serve their members, not capital investors. This legislation would fundamentally alter the limited, member-oriented character of credit unions – the very basis of their tax exemption. Mutual ownership is one of the few structural characteristics that distinguish credit unions from most commercial banks. Mutual ownership – along with credit unions’ original mission of serving people of modest means with a common bond among them – was the original justification for their tax exemption. Congress long ago removed the tax exempt status of mutual savings banks and should now do the same with regard to credit unions. Supplemental capital could fund and exacerbate the recent trend of credit unions’ purchasing community banks.
Community Reinvestment Act. ICBA urges Congress to apply CRA to tax-exempt credit unions in a manner comparable to, and with the same asset size distinctions, as banks and thrifts. Multiple studies have indicated that credit unions are not meeting even the fundamental mandate of their charter to serve people of modest means; their members have higher incomes and education levels than bank customers. ICBA urges Congress to move towards more regulatory equity by applying CRA standards to all credit unions.
Call Report Filings. ICBA urges Congress to require NCUA to impose the same call report filing requirements as those imposed by banking regulators upon community banks. ICBA notes that the nation’s largest credit unions file call reports that are dwarfed in volume by those filed by much smaller community banks. This gross inequity should be remedied as soon as possible.
Charter Choice. NCUA routinely approves mergers and conversions from occupational to geographic charters that allow credit unions to serve large population bases without regard to common bond. At the same time, NCUA has made it more difficult for credit unions to convert to mutual savings bank charters. ICBA supports and encourages credit union conversions to bank or thrift charters, and supports legislation to prohibit the NCUA from obstructing these conversions. Additionally, credit unions should be required to convert to thrift charters if they pursue mergers or conversions to geographically based charters to serve large populations without a common bond.
Transparency. NCUA should be required to disclose all documents related to denials of credit union applications for conversion to commercial banks and all documents related to regulatory proposals that would grant credit unions new member business lending authorities or expanded fields of membership.