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ICBA Opposes Credit Union Tax Exemption

Washington, D.C. (June 16, 2011)-Noah Wilcox, fourth-generation president and CEO of Grand Rapids State Bank, Grand Rapids, Minn., and a member of the Independent Community Bankers of America (ICBA) Executive Committee, today expressed opposition to the Small Business Lending Enhancement Act (S. 509) and told Congress not to expand credit union business lending powers unless it is also prepared to tax credit unions and require them to comply with the Community Reinvestment Act. 

"The current credit union tax exemption is directly linked to, and can only be justified by, their original mission of serving individuals of modest means," Wilcox said in his testimony before the Senate Banking Committee.  "Credit union business lending is an immediate threat to my bank.  I'm happy to compete with other tax-paying lenders, even large banks, but the credit union tax exemption creates an unfair advantage and distorts the market."

If enacted, S. 509 would allow the National Credit Union Administration (NCUA) to approve member business loans up to 27.5 percent of a credit union's assets, which is more than double the current cap of 12.25 percent.  The cap was not set arbitrarily and was intended to ensure that commercial lending would not comprise more than a marginal part of a credit union's lending.  "The credit unions have portrayed S. 509 as an effort to make more credit available for small businesses, but the truth is that only a small number of credit unions are at or near the current member business lending cap," Wilcox said.  "We estimate this number to be about 0.5 percent of the approximately 7,400 credit unions." 

Over 70 percent of credit unions report no member business loans at all.  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. "There is ample capacity for the remaining 99.5 percent of credit unions to expand their member business lending," Wilcox said.  "What's more, there are numerous exceptions to the member business lending cap."

Some advocates of S. 509 claim that expanded credit union commercial lending would come at no cost to taxpayers but 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. 

"The case for repealing the credit union tax exemption stands on its own merits as a deficit reduction measure," Wilcox said. "When credit unions seek to expand their business lending powers and become the equivalent of banks, linking expanded lending powers to repeal of the tax exemption is a matter of tax equity.  ICBA strongly urges this committee to reject calls for new powers for tax-subsidized credit unions that will not, despite assertions to the contrary, measurably expand small business credit or create jobs."

Companion legislation (H.R. 1418) has also been introduced in the House.

For more information and to read Wilcox's testimony, please contact Aleis Stokes at (202) 821-4457 or visit www.icba.org