WASHINGTON–A bankers’ trade group has sent a letter to the new Congress with an old demand--end the credit union tax exemption--using a new message: CU acquisitions of banks are creating a “brain drain” in local communities.
NAFCU has responded by saying the “bankers’ true motives” are apparent and that the tax exemption is good for the country.
The letter from the Independent Community Bankers of America (ICBA) was sent to all 535 senators and representatives suggests this is a “historic challenge and historic opportunity. The work you do in this Congress will help us to finally move past a deadly and economically costly pandemic and set the trajectory for fundamental aspects of American economic life for a generation.”
The letter, signed by ICBA President Rebecca Romero Rainey, includes 11 different priorities the group wants addressed, including that Congress “curb or eliminate tax subsidies for rapid-growth, bank-like credit unions.”
A ‘Brain Drain’
“Tax-exempt credit unions have become virtually indistinguishable from tax-paying commercial banks,” Romero Rainey wrote. “Today’s larger, growth-oriented credit unions are leveraging their tax subsidy to purchase tax-paying community banks. This trend will reduce consumer choice and erode the tax base of states and localities
“Importantly, it will create a ‘brain drain’ of specialized local lending expertise at an especially critical time: during a pandemic and the coming recovery,” the letter continues. “ICBA urges Congress to restore balance to the American financial services marketplace and help close the growing budget deficit by re-examining the justification for the outmoded, 100-year-old credit union tax subsidy.”
NAFCU Response
NAFCU CEO Dan Berger responded by saying elimination of the tax exemption will have negative implications for the country.
“For decades, credit unions have stood as pillars in their local communities and have provided financial support to their members and Main Street small businesses when they needed it most,” said Berger in a statement. “Not only does the credit union industry’s tax status provide our nation with $16 billion in annual economic benefit, the industry provides the most consumer-centric financial services in the marketplace – and they have been nationally recognized for doing so.
“Eliminating the credit union tax exemption hurts everyone – American consumers, our local communities, and the national economy,” Berger continued. “Still, even in the midst of a world-wide pandemic and crisis, bankers continue to peddle anti-credit union propaganda in an attempt to undermine a separate – yet competing – industry that is focused entirely on putting people before profit. This fact alone should tell policymakers all they need to know about bankers’ true motives. NAFCU urges policymakers to outright reject any and all attempts to impair the good work of not-for-profit credit unions as they help their 123 million members.”
ICBA’s Other Priorities
After praising the role of community banks in making loans through the Paycheck Protection Program, the ICBA also urged Congress to:
- Promote De Novo Community Banks. “In recent years, the pace of de novo bank formation has slowed to a trickle. De novo formation is needed to offset the loss of smaller community banks through consolidation and help ensure a robust community bank landscape serving small businesses and households.”
- Support Minority Depository Institutions. “Minority owned depository institutions (“MDI” or minority banks) play a unique role serving as catalysts for economic growth and revitalization in the neighborhoods they serve,” the ICBA said. “Minority banks are committed to the social mission of helping to improve lives and stabilize neighborhoods despite the difficulties and challenges of operating in distressed communities. It is crucial that minority banks have the legislative, regulatory, and financial support they need to stay operational and profitable.”
- Provide for Banking Services for Legal Cannabis-Related Businesses. ICBA said it supports legislation that would create a safe harbor from federal sanctions for financial institutions that serve cannabis-related businesses in states where cannabis is legal.
- Modernize the Bank Secrecy Act. ICBA recommends raising the currency transaction report (CTR) threshold from $10,000 to $30,000 and indexing future increases on an annual basis.
- Ensure No Regulatory Subsidy for Fintech. Congress should ensure that online marketplace lenders or other fintech companies are not given an unfair regulatory advantage over depository institutions such as community banks, ICBA said. “In particular, the OCC should not issue a special purpose charter for fintech companies in the absence of explicit statutory authority from Congress. Any new federal charter should be subject to the same standards of safety, soundness, and fairness as other federally chartered institutions.”
- Address the ILC Loophole, Which Promotes Corporate Consolidation and Threatens the Federal Safety Net. “Commercial company ownership of ILCs will effectively combine banking and commerce, contrary to long-standing American economic policy prohibiting ownership or control of banks by commercial firms to preserve fair and competitive access to credit,” the ICBA said.
- Address the Farm Credit System, Which Is Crowding Out Rural Community Bank Lending.“Farm Credit System (FSC) lenders enjoy unfair advantages over rural community banks and leverage their tax and funding advantages as government sponsored enterprises (GSEs) to siphon the best loans away from community banks. The FCS is the only GSE that competes directly against private sector lenders at the retail level,” the letter reads.
- Incentivize Credit for Low- and Middle-Income Customers and American Agriculture. ICBA said it supports the creation of new tax credits or deductions for community bank lending to low- and moderate-income individuals, businesses, and farmers and ranchers.
- Ensure Housing Finance Reform Supports the Mortgage Market and Taxpayers. “Reform efforts must provide robust and equitable secondary market access for lenders of all sizes, ensure no competition from the GSEs at the retail level, and permit retention of mortgage servicing rights on transferred loans. ICBA does not support reform proposals that would liquidate and distribute the GSEs’ assets, intellectual property, or infrastructure to the largest national lenders and Wall Street institutions.”
- Drop Plans for Postal Banking. ICBA said it opposes “well intended but ultimately counterproductive proposals to allow the U.S. Postal Service (USPS) to offer financial products and services. The encroachment into these activities by a major federal agency would represent a significant, government-sponsored, competitive threat to the ongoing viability of the nation’s thousands of private-sector, tax-paying community banks. Financial services are best provided in a competitive, private, and free marketplace that openly and efficiently benefits customers.”