ICBA urges Congress to end the unwarranted federal tax subsidy of the credit union industry and/or promote increased tax parity between credit unions and community banks.
ICBA staunchly opposes credit unions exploiting their tax subsidy and lax regulatory environment to purchase community banks. These acquisitions are inconsistent with Congressional intent behind credit unions’ tax exemption and warrants Congressional scrutiny.
ICBA implores Congress to use its oversight authority to investigate the National Credit Union Administration’s alarming failure to regulate and oversee the industry. The NCUA stands in stark contrast to the other banking agencies.
ICBA opposes expanded powers for credit unions—so long as they remain tax-exempt—whether pursued by legislation or regulation, such as acquisitions of community banks, commercial lending, field of membership, and supplemental capital powers.
ICBA supports applying Community Reinvestment Act requirements to credit unions comparable to and with the same asset size distinctions as banks and thrifts.
ICBA urges states to prohibit the placement of public deposits in tax-exempt credit unions. Public entities should not support tax-exempt institutions that erode the tax base on which these entities depend.
ICBA supports the right of credit unions to convert to commercial banks without excessive regulatory hurdles. It should be no more difficult, from a regulatory perspective, for a bank to purchase a credit union than for a credit union to purchase a bank. ICBA encourages credit unions seeking bank-like powers to convert to bank or thrift charters.
The credit union tax exemption is based on an outdated 100-year-old law that has never been revisited. Since that time, credit unions have become larger, more complex, and bank-like in their size, powers, product and service offerings, and fields of membership – a trend that has sharply accelerated in recent years.
It is past time to bring credit unions into the 21st century, revoke their privileged status, and tax and regulate them as we do comparable financial institutions. The credit union model has become outdated, and its charter, purpose and tax-exempt status should be reviewed by Congress.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. Credit unions’ share of Paycheck Protection Program loans was 3.62 percent in 2020.
ICBA and community banks are particularly alarmed by the recent trend of credit unions acquiring banks – effectively “weaponizing” their tax subsidy and lax regulatory standards. In addition to their use of tax subsidized earnings, credit unions have a regulatory capital advantage in the acquisitions market: Under NCUA rules, goodwill is treated as regulatory capital (or “net worth”), while banks are required to deduct goodwill in regulatory capital calculations as an intangible asset. This differential effectively allows credit unions to outbid banks in the purchase of other banks.
Credit union acquisitions of community banks and their branches have accelerated rapidly, with the last five years seeing approximately a 400 percent increase over the previous five years. These deals transform taxable business activity at community banks into tax-exempt activity at credit unions, thereby shrinking the tax base, not only at the federal level but at the state and local level as well.
Credit union-bank acquisitions are a perversion of congressional intent. The federal tax exemption was designed to create access to affordable basic banking services for people of modest means who would otherwise lack it. But with these acquisitions, the tax exemption has become a tool of harmful industry consolidation. Larger, out-of-market credit unions are displacing smaller, locally based community banks, creating an environment that is less competitive, has more systemic risk, and offers fewer choices for consumers and small businesses.
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 the Consumer Reinvestment Act. Banks and credit unions should operate on military bases under the same terms. (Credit unions currently operate rent-free on bases.) Large, multi-bond and geographic-based credit unions have exceeded their statutory mission and use their tax-exempt, government-subsidized status to gain competitive advantage over taxpaying community banks.
The most recent example of permissive regulation is NCUA’s adoption of a rule to allow credit unions to raise supplemental capital, which is a tool for outside investments in credit unions, undermining their status as member-owned cooperatives, a long-standing justification for their tax exemption. Supplemental capital will likely be a new source of funding for the acquisition of community banks.
ICBA and the nation's community banks are calling on policymakers and the public to “Wake Up” to the risky practices, costly tax subsidies, and irresponsibly lax oversight of the nation’s credit unions. Policymakers must open their eyes
to the growing threats posed by credit unions' abandonment of their founding mission facilitated by their captive federal regulator, the National Credit Union Administration.
The National Credit Union Administration approved an ICBA-opposed rule expanding credit union service organizations' permissible services and activities to include anything federal credit unions can currently do.
Background: CUSOs are corporate entities owned by credit unions but are not mutually owned, member owned, required to serve credit union members, or overseen by credit union laws and regulations. Instead, they're privately owned and often for-profit businesses.
ICBA Comments: ICBA earlier this year urged the NCUA to withdraw the rule to avoid dramatically deregulating CUSOs and further eroding the credit union industry's tax-exempt mission while expanding risks to consumers, the fund insuring credit union member shares, and credit unions themselves.
Supervision: The NCUA does not have supervisory or examination authority over CUSOs. ICBA supports Congress expanding oversight of CUSOs and third-party vendors, which it is advocating as part of its "Wake Up" campaign.