Menu
Tax Notes logo

Bankers Groups Ask Hatch to End Exemption for Large Credit Unions

FEB. 20, 2018

Bankers Groups Ask Hatch to End Exemption for Large Credit Unions

DATED FEB. 20, 2018
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Alabama Bankers Association
    Alaska Bankers Association
    Arizona Bankers Association
    Arkansas Bankers Association
    California Bankers Association
    Colorado Bankers Association
    Connecticut Bankers Association
    Delaware Bankers Association
    Florida Bankers Association
    Georgia Bankers Association
    Hawaii Bankers Association
    Idaho Bankers Association
    Illinois Bankers Association
    Illinois League of Financial Institutions
    Indiana Bankers Association
    Iowa Bankers Association
    Kansas Bankers Association
    Kentucky Bankers Association
    Louisiana Bankers Association
    Maine Bankers Association
    Massachusetts Bankers Association
    Michigan Bankers Association
    Minnesota Bankers Association
    Mississippi Bankers Association
    Missouri Bankers Association
    Montana Bankers Association
    Nebraska Bankers Association
    Nevada Bankers Association
    New Hampshire Bankers Association
    New Jersey Bankers Association
    New Mexico Bankers Association
    New York Bankers Association
    North Carolina Bankers Association
    North Dakota Bankers Association
    Ohio Bankers League
    Oklahoma Bankers Association
    Oregon Bankers Association
    Pennsylvania Bankers Association
    Puerto Rico Bankers Association
    Rhode Island Bankers Association
    South Carolina Bankers Association
    South Dakota Bankers Association
    Tennessee Bankers Association
    Texas Bankers Association
    Utah Bankers Association
    Vermont Bankers Association
    Virginia Bankers Association
    West Virginia Bankers Association
    Washington Bankers Association
    Wisconsin Bankers Association
    Wyoming Bankers Association
    Maryland Bankers Association
  • Subject Area/Tax Topics
  • Industry Groups
    Banking, brokerage services, and related financial services
    Nonprofit sector
  • Jurisdictions
  • Tax Analysts Document Number
    2018-8987
  • Tax Analysts Electronic Citation
    2018 TNT 37-12
    2018 EOT 9-15
    2018 EOR 4-64
  • Magazine Citation
    The Exempt Organization Tax Review, Apr. 2018, p. 277
    81 Exempt Org. Tax Rev. 277 (2018)

February 20, 2018

The Honorable Orrin Hatch
Chairman
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Chairman Hatch:

On behalf of the 52 state bankers associations from every state in the country, thank you for your leadership in shepherding the Tax Cuts and Jobs Act into law. We believe the significant reforms will help grow the economy, increase wages, and create jobs. Closing loopholes, eliminating many special-interest carve-outs, and lowering rates will allow businesses large and small to grow the economy.

While there is much to like in this landmark bill, lawmakers missed an opportunity to reform the outdated and increasingly wasteful tax advantages enjoyed by the most aggressive credit unions. We are therefore appreciative of the letter you recently sent to the National Credit Union Administration, which asks appropriate questions that will demonstrate that the public policy purposes of the Depression Era-tax exemption do not match the facts on the ground. Purchasing taxpaying entities, engaging in unrelated businesses lines, and outrageous compensation packages should not be tolerated by entities that are supposedly “not-for-profit.”

The tax code should not pick winners and losers, and should treat similarly situated businesses alike, but that is not what happens today. There is no reason why the largest credit unions, which act and look just like the taxpaying banks they compete with, should be completely free of income taxation. This creates a market distortion where the tax code effectively subsidizes one financial services entity (the largest credit unions) over another (the smaller community bank).

If Congress were to resolve this special tax treatment, it should not result in a net tax increase on the American people. Rather, any tax revenue raised by the reform should be immediately and simultaneously dedicated to tax cuts of equal or greater size, dollar for dollar. Congress should do so this year.

Although the credit union industry works to paint a picture of small financial institutions struggling to get by — and the overwhelming majority of credit unions fit into this category and should maintain their tax status — there is a separate class of credit unions that have moved from church basements to conglomerates. They hide behind the goodwill others create to operate free of significant oversight of the tax policy consequences of their actions. The number of credit unions with more than $1 billion in assets has more than doubled in the past decade. These nearly 300 credit unions represent just 5 percent of America’s nearly 6,000 credit unions, but enjoy 75 percent of the tax subsidy.

As you review the responses from NCUA and credit union lobbyists, we encourage you to remember why Congress exempted credit unions from federal income taxes in the first place: a targeted mission to provide small-dollar loans to consumers of modest means, with access limited to small groups of people with a “common bond.” Credit unions today are a sophisticated and rapidly expanding $1.4 trillion industry. Aided by an amenable regulator, common bond limitations for top credit unions are effectively nonexistent. Individual federal credit unions are now able to serve anyone in large multistate regions — for example, in the Washington region, land stretching from West Virginia to Pennsylvania to the Delaware border to nearly Richmond, VA is now called a single “local” community. The NCUA also recently permitted a significant expansion into commercial lending, and has even proposed to allow investors to profit from the credit union industry through capital investments.

A decade ago, the Government Accountability Office found that the historic distinction between banks and credit unions “has continued to blur” — an obvious conclusion even truer today.

Who benefits? Affluent people, credit union industry executives, and even the National Basketball Association. Consider this:

  • While credit unions were created to serve people of modest means, the benefits of the tax subsidy skew to affluent consumers; the Prochnow Foundation found that 61% of the consumer benefits go to households with incomes over $95,000, while the National Community Reinvestment Coalition found credit unions lag banks in making loans to low- and moderate-income communities.

  • Many of the benefits are never seen by consumers at all. A study by the Tax Foundation concluded that very little of the benefits from the credit union tax exemption are passed through to customers. Most of the tax benefit was retained by credit unions themselves. Indeed, credit unions have leveraged their tax subsidy to:

    • Pay their CEOs millions, such as the $9.3 million paid to Eastman Credit Union of Kingsport, TN, a community whose median household income is $37,465.

    • Build or buy large headquarters buildings, such as PenFed Credit Union’s $164 million building in Tysons Corner, VA.

    • Buy naming rights to stadiums and bowl games, such as Golden 1 Credit Union’s $120 million spent to get its banner on the arena housing the Sacramento Kings.

Do they really need help from taxpayers? Even some credit union industry leaders say no. As Ed Speed, former CEO of the large Texas Dow Employees Credit Union (TDECU), has written: “The only impact taxation would have on TDECU is that we will double in size every seven years instead of every five years.” Thus, eliminating the tax subsidy does not have to impact credit union customers.

Is there a rationale, economic or otherwise? While credit unions tout numbers of how tax-exempt lending stimulates the economy, these studies have been discredited by a number of serious independent economists, including from the Tax Foundation and American Enterprise Institute. Of course, a tax subsidy can make it easier for an industry to expand — the question is whether that is good policy? Credit unions also say that because they are customer-owned, they deserve their tax status. However, other financial institutions with cooperative, customer-owned structures have been subject to federal income taxes for decades, including mutual insurance companies and mutual banks, and still have thrived.

Credit unions still maintain their tax status because, as Senator Tom Coburn pointed out in 2014, of “the momentum of the status quo.” The status quo must change. The public policy justification disappeared long ago. Previous administrations, both Democratic and Republican, have long recommended ending the credit union industry’s tax exemption. Taxpayers should no longer subsidize these large, aggressive entities that are called not-for-profit, but don’t act that way.

Thank you for your leadership exploring this issue. We urge you not to let the status quo stop your committee from ending this outdated tax exemption.

Sincerely,

Alabama Bankers Association

Alaska Bankers Association

Arizona Bankers Association

Arkansas Bankers Association

California Bankers Association

Colorado Bankers Association

Connecticut Bankers Association

Delaware Bankers Association

Florida Bankers Association

Georgia Bankers Association

Hawaii Bankers Association

Idaho Bankers Association

Illinois Bankers Association

Illinois League of Financial Institutions

Indiana Bankers Association

Iowa Bankers Association

Kansas Bankers Association

Kentucky Bankers Association

Louisiana Bankers Association

Maine Bankers Association

Maryland Bankers Association

Massachusetts Bankers Association

Michigan Bankers Association

Minnesota Bankers Association

Mississippi Bankers Association

Missouri Bankers Association

Montana Bankers Association

Nebraska Bankers Association

Nevada Bankers Association

New Hampshire Bankers Association

New Jersey Bankers Association

New Mexico Bankers Association

New York Bankers Association

North Carolina Bankers Association

North Dakota Bankers Association

Ohio Bankers League

Oklahoma Bankers Association

Oregon Bankers Association

Pennsylvania Bankers Association

Puerto Rico Bankers Association

Rhode Island Bankers Association

South Carolina Bankers Association

South Dakota Bankers Association

Tennessee Bankers Association

Texas Bankers Association

Utah Bankers Association

Vermont Bankers Association

Virginia Bankers Association

Washington Bankers Association

West Virginia Bankers Association

Wisconsin Bankers Association

Wyoming Bankers Association

cc:
Members of the United States Senate

DOCUMENT ATTRIBUTES
  • Institutional Authors
    Alabama Bankers Association
    Alaska Bankers Association
    Arizona Bankers Association
    Arkansas Bankers Association
    California Bankers Association
    Colorado Bankers Association
    Connecticut Bankers Association
    Delaware Bankers Association
    Florida Bankers Association
    Georgia Bankers Association
    Hawaii Bankers Association
    Idaho Bankers Association
    Illinois Bankers Association
    Illinois League of Financial Institutions
    Indiana Bankers Association
    Iowa Bankers Association
    Kansas Bankers Association
    Kentucky Bankers Association
    Louisiana Bankers Association
    Maine Bankers Association
    Massachusetts Bankers Association
    Michigan Bankers Association
    Minnesota Bankers Association
    Mississippi Bankers Association
    Missouri Bankers Association
    Montana Bankers Association
    Nebraska Bankers Association
    Nevada Bankers Association
    New Hampshire Bankers Association
    New Jersey Bankers Association
    New Mexico Bankers Association
    New York Bankers Association
    North Carolina Bankers Association
    North Dakota Bankers Association
    Ohio Bankers League
    Oklahoma Bankers Association
    Oregon Bankers Association
    Pennsylvania Bankers Association
    Puerto Rico Bankers Association
    Rhode Island Bankers Association
    South Carolina Bankers Association
    South Dakota Bankers Association
    Tennessee Bankers Association
    Texas Bankers Association
    Utah Bankers Association
    Vermont Bankers Association
    Virginia Bankers Association
    West Virginia Bankers Association
    Washington Bankers Association
    Wisconsin Bankers Association
    Wyoming Bankers Association
    Maryland Bankers Association
  • Subject Area/Tax Topics
  • Industry Groups
    Banking, brokerage services, and related financial services
    Nonprofit sector
  • Jurisdictions
  • Tax Analysts Document Number
    2018-8987
  • Tax Analysts Electronic Citation
    2018 TNT 37-12
    2018 EOT 9-15
    2018 EOR 4-64
  • Magazine Citation
    The Exempt Organization Tax Review, Apr. 2018, p. 277
    81 Exempt Org. Tax Rev. 277 (2018)
Copy RID