Bernanke Turns MBL Hike Scrooge
Talk about bad timing for credit unions.
On the very day when several thousand credit union activists were visiting Capitol Hill to push for an increase in the cap on member business lending, Federal Reserve Chairman Ben Bernanke advised lawmakers against doing so.
Bernanke told the House Financial Services Committee last Wednesday that because credit unions are tax exempt, they need to accept certain restrictions on their activities, including a limit on how much member business lending they can do.
He told the panel that credit unions enjoy a "tax-favored" status and that gives them certain competitive advantages over banks. Lawmakers should keep that in mind before granting credit unions other privileges, including raising the cap on member business lending, he said in response to a question from Rep. Brad Sherman (D-Calif.).
"The banks would complain, obviously, that if credit unions are allowed to do everything banks can do, why are they tax favored? I think that's the trade off Congress has to consider," Bernanke said.
Sherman is a co-sponsor of legislation that would raise the cap on MBL from 12.25% of assets to 25% of assets. During his questioning of Bernanke, Sherman mentioned the analysis by CUNA and NAFCU that lifting the cap could create 100,000 jobs at no cost to taxpayers.
Not surprisingly, officials of CUNA and NAFCU were quick to disagree with Bernanke's contentions.
"The chairman is gravely misinformed," said CUNA Senior Vice President for Legislative Affairs John Magill.
He noted that the tax-exempt status of credit unions is based on their structure not on the types of loans they offer or their net worth.
NAFCU President/CEO Fred Becker wrote Bernanke a letter requesting a meeting to discuss the issue, and Becker pointed out that at "no point throughout the last 90 years has Congress, or any other government agency, stated that credit unions enjoyed their tax-exempt status in exchange for accepting restrictions on their activities, most especially those activities that have long been in place."
CUNA made a push for an increase in the MBL cap a key priority during its members' meetings with lawmakers that were tied to the Governmental Affairs Conference. However, so far CUNA and NAFCU have been unable to persuade lawmakers to include such a measure in any of the job-creation bills working their way through Congress.
Bernanke's linking of raising the lending cap to the tax-exempt status of credit unions resurrects an issue that has long been a bone of contention between credit unions and banks.
Banks have long maintained that the tax exemption is an unfair subsidy to credit unions and say that lifting the exemption would raise about $10 billion over a six- to 10-year period.
Given the federal deficit and the need for additional revenue, lobbyists for CUNA and NAFCU have said they are always on the lookout for efforts to repeal the tax-exempt status. However, the Obama administration has never suggested it is considering asking Congress to take such an action.
While credit unions enjoy bipartisan support on Capitol Hill, they have occasionally had the tax exemption challenged.
On Nov. 3, 2005, the House Ways and Means Committee held a hearing on the subject. Then-NCUA Chairman JoAnn Johnson said the status had enabled credit unions to provide many Americans with affordable financial services.
At the session, then-Chairman Bill Thomas (R-Calif.) said he wouldn't push to repeal credit unions' tax-exempt status but asked the Government Accountability Office, Congress' investigative arm, to examine how well credit unions were serving underserved areas and whether they were collecting and disclosing enough financial data.
A year later, the GAO concluded that "credit unions lagged behind banks in serving low- and moderate-income households." The report also concluded that "credit union executive compensation is not transparent."
The concerns raised by Congress caused the NCUA to create an outreach task force.
In May 2008, the board adopted key recommendation of the task force, a rules change to collect additional data from credit unions to rebut criticism about credit unions' lack of hard numbers to support their claims of service to the underserved. The agency will upload credit union membership data during regular examinations and use geo-coding software to generate a membership income profile.