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ICBA to Congress: Credit Union Business Lending Powers Should Not Be Expanded Unless Tax Exempt Status Is Repealed

Washington, D.C. (October 12, 2011)—In his testimony before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, Sal Marranca, Independent Community Bankers of America (ICBA) chairman and president and CEO of Cattaraugus County Bank, Little Valley, N.Y., urged Congress not to expand credit union business lending powers unless it is also prepared to tax credit unions and require compliance with the Community Reinvestment Act. He also said that repealing the credit union tax exemption stands on its own merits as a deficit-reduction measure.

“The current tax exemption that credit unions enjoy is directly linked to their original mission of serving individuals of modest means,” Marranca said. “However, after decades of ‘mission creep,’ which has resulted in multi-billion-dollar credit unions, that tax exemption can no longer be justified.”

Marranca went on to say that ICBA opposes the Small Business Lending Enhancement Act, H.R. 1418, which would allow the National Credit Union Administration (NCUA) to approve member business loans up to 27.5 percent of a credit union’s assets—more than double the current cap of 12.25 percent. “Credit unions have portrayed H.R. 1418 as an effort to make more credit available for small businesses,” Marranca said. “However, only a small number of credit unions are at or near the current member business lending cap—just over two percent of the approximately 7,300 credit unions, according to the NCUA.”

While over 70 percent of credit unions report no member business loans at all, our nation’s more than 7,000 community banks continue to be prolific small business lenders. In fact, community banks fund nearly 60 percent of all small business loans under $1 million.

“Those credit unions that are at or near the cap are the largest and most complex credit unions, and the business loans they make are often multi-million-dollar deals—not small business loans,” Marranca said. “There is ample capacity for the remaining 98 percent of credit unions to expand their member business lending.”

Marranca went on to explain that while some advocates of H.R. 1418 claim that expanded credit union commercial lending would come at no cost to taxpayers, the Joint Committee on Taxation, the Office of Management and Budget, and the Congressional Budget Office have all identified credit union lending as a tax expenditure. In fact, the most comprehensive and sophisticated analysis of this tax expenditure to date was done by the nonpartisan Tax Foundation, which valued the subsidy at $3 billion a year and $32 billion over a 10-year budget window.

“The credit union tax exemption deprives state and local governments of revenue, many of which are facing deep cuts to essential services to remain solvent,” Marranca said. “The case for repealing the credit union tax exemption stands on its own merits as a deficit-reduction measure.”

“When credit unions seek to expand their business lending powers and become the equivalent of banks, linking expanded lending powers to the repeal of the tax exemption is a matter of tax equity,” he said as he concluded his testimony.

For more information, visit www.icba.org.

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