WASHINGTON–The National Taxpayers Union has sent a letter to the House Financial Services Committee and the Senate Banking Committee in which it said it wants to see any increase in the credit union member business lending cap accompanied by other changes in order to provide “transparency,” while also advocating for taxing CUs.
Credit unions have made some efforts on Capitol Hill in recent months to raise the cap, saying it would allow greater flexibility to respond to the coronavirus pandemic.
The cap has been in place for 20 years. In the letter, NTU Policy and Government Affairs Manager Thomas Aiello wrote, “As an organization that strongly advocates for the removal of government-imposed barriers that inhibit lending and access to capital, NTU can understand the support among some Committee Members for a permanent increase in the Member Business Loan (MBL) cap. Indeed, as many of you know, NTU has in the past voiced such support as well. Nonetheless, over the past several years persistent, increasingly urgent issues surrounding transparency, oversight, and unfair competition in the credit union industry have arisen. Before Congress can contemplate any increase in the MBL cap, immediate reforms must be undertaken. Until these steps are taken, NTU stands opposed to an expansion of the lending cap.”
Four Requests
Should Congress raise the MBL cap, the NTU said it wants to see “enhanced transparency” from credit unions, including:
* IRS Form 990 filing requirement. “Excluding federal credit unions from filing Form 990 to the IRS is highly unusual for a tax-exempt organization. To better promote transparency, Congress or the IRS should lift this exemption and so that credit unions uniformly file the Form 990 (state-chartered credit unions already do so). This will ensure greater accountability by allowing both the IRS and the public to examine and scrutinize an organization's balance sheets, expenses, and executive compensation.”
* Unrelated Business Income Tax. “In addition to being exempt from federal and state income tax, federal credit unions are not subject to the Unrelated Business Income Tax (UBIT). This provision of the tax code was designed to ensure tax-exempt organizations are focusing on their primary missions; state-chartered credit unions are subject to UBIT but federal credit unions are not. UBIT provisions do not function optimally. However, this is all the more reason to revise and make less onerous the rules of the road for all nonprofit entities, including credit unions, rather than upholding carve-outs that lead to further complexity as well as economic distortions without apparent offsetting benefit. One starting point for the credit union space, in particular, is to examine whether business lending should be considered part of a credit union’s exempt purpose…”
* Tax parity with other financial institutions. “The marketplace for acquisitions is steeply tilted in favor of credit unions. Credit unions purchase banks with dollars they have accumulated on a tax-free basis, allowing them to outbid tax-paying banks. This in part accounts for the recent spike in such transactions. In recent years credit unions have leveraged their tax exemption to purchase non-financial assets, including an advertising agency that serves many corporate clients. At the same time, regulatory barriers created by the National Credit Union Administration make it nearly impossible for a bank to purchase a credit union. If Congress were to adjust the MBL cap for credit unions, it would be prudent to level the playing field so that all entities face the same regulatory requirements and pay roughly the same (and in our opinion moderate) level of tax on non-credit-union asset acquisitions and MBLs, thereby reducing economic distortions created by the credit union tax exemption.”
* Address Field of Membership Concerns. “With the enactment of the Federal Credit Union Act of 1934, Congress established membership rules for credit unions eligible to be considered a tax exempt institution. Credit unions are intended to serve individuals who share a “common bond,” like working for the same employer, attending the same religious institution, or living in the same community. However, many large credit unions have strayed from their limited mission and extended their services to nearly anyone. Congress should work to reestablish and clarify sensible common-bond requirements that are a condition of credit unions’ unique status.”