Taxes and Bankers and WesCorp-Oh My!
The taxation issue brought up in a report by a quasi-administration panel is as much rite of passage into budget season as a learner's permit is to a nearly 16-year-old.
Remember when you were 16 and drove around in an old rust bucket that was probably mom's old station wagon. It was ugly but it worked. That's how the bankers see the tax issue when this comes up each year: it ain't pretty but dang it if doesn't put a bee in the bonnet of those credit unions.
The American Bankers Association wrote a letter encouraging the taxation of credit unions. "The credit union industry has dramatically changed from the days when granting credit unions tax-free status might have made policy sense. It has never made fiscal sense," CEO Ed Yingling wrote. The Wisconsin Bankers Association and probably others made similar statements.
This at least annual exercise has become monotonous-the same arguments made year after year. Bankers: they're in our space. Credit unions: we're not touching you, we're not touching you. It can sound like a road trip with my kids.
But it could be the bankers' plans are to lull credit unions to sleep and catch them when they're not paying attention. The credit union trades reacted because they had to.
This year of all years eliminating the credit union tax exemption could gain traction. The federal deficit has never been more and we keep digging ourselves deeper into that hole. Democrats tend to be more tax happy, though credit unions have received support in the past from both sides of the aisle on this matter. It was highly disappointing-and frankly disrespectful-to see the bankers' shtick that taxing credit unions would "level the playing field" in the report. Not only is it obvious the bankers likely weighed in on this report, but it also shows a complete lack of understanding of the other restrictions credit unions operate under.
I'm curious though if an anonymous poll would find that most credit unions would not mind being taxed if there were an upside to it. If credit unions got greater access to capital and expanded powers, would it be worth the so-called tax burden. Credit unions do enough charitable work right now and could find the expertise to avoid paying much-if not all-of this burden. (Just ask Citibank how they do it; I'm sure they'll be willing to share.) Credit unions could still perform their good deeds and have greater resources and authorities to do them. As I wrote in our Credit Union Exchange blog previously, the tax benefit should not be taken lightly or given up without a fight but it can't be a line in the sand either. CUNA has said in the past that the tax exemption is its members' No. 1 concern. Might be time for a change. At the same time, taxing credit unions would be a huge mistake on the part of Uncle Sam because good policy reasons do still exist for the exemption.
In eliminating those charter differences though, the NCUA could go the way of the Office of Thrift Supervision. While there's been plenty of finger pointing at the federal credit union regulator, I don't think that's in any credit union's best interest. Perhaps the agency needs a few solid changes to keep up to speed with the industry it's regulating, such as the 2,300%-to-capital investments WesCorp had in private-label MBS revealed this week, but to be folded into the same regulator as the banks would be heading from the frying pan into the fire. A bank regulator might not understand credit unions in an entirely different way.
Regarding the amended WesCorp lawsuit, a lot of bombs were hurled by the agency at former WesCorp executives and boards, which added fraud to the charges in the civil case. The NCUA must have some rock solid evidence in the case to make the allegations it has. And, a criminal case should be pending.
Curiously, the NCUA provided a breath of relief for certain defendants against whom charges were dismissed. While many of the defendants are notable, newly installed CUNA President/CEO Bill Cheney remains a defendant. In response, he issued a statement that he was disappointed the NCUA had taken this route.
Some PR types and I found this curious. The agency added a count of fraud against the named WesCorp executives; Siravo et al could have carried the day as far as the news, so why issue a statement putting focus back on Cheney?
I understand wanting to get out in front with the message but this just reminded everyone that CUNA's new CEO is a defendant in the suit. And, particularly the statement that "nothing in this case will diminish CUNA's effectiveness" is troubling. Cheney is being sued by the regulator-relations between the two entities must be strained to say the least.
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