For a day, credit unions' federal tax exemption appeared to be in jeopardy. H.R. 6474 wouldhave gradually repealed credit unions' tax-exempt status over fiveyears. Fortunately for credit unions, a spokesman for Rep. DennisRoss, the bill's sponsor, explained that the inclusion of this inthe bill was accidental, and it will be deleted by a manager'samendment.

While credit unions seem to have dodged this lob for now, it diddraw attention to the credit union tax exemption, which the bankinglobby is sure to relish. The issue has been brought up time andagain, and particularly since the economic crisis and the resultingSimpson-Bowles commission, but this was the first time creditunions were named specifically in federal revenue legislation indecades, intentional or not.

Credit unions could certainly survive a 15% to 35% tax hit, butthey would come out nothing like they are today. Credit unions' netincome in aggregate was 86 basis points as of the second quarter,so a tax would very much change the way they operate. Credit unionswith less than $50 million in assets would essentially be wiped outif this were to come to fruition. Credit unions with $10 million to$50 million in assets have an aggregate net income of 30 basispoints, according to a report from Catalyst Strategic Solutions.Those $2 million to $10 million have net income of 6 basis points.The credit unions smaller than $2 million in assets are already ata negative 49 basis points. Even the $50 million to $100 millioncategory are at 45 basis points in net income.

The credit union community would survive, but the worst resultwould be that they would be working to pay the taxman rather thanhelping their members. With all of the other regulatoryrestrictions and burdens, what would be the point? A tax on creditunions would leave many moderate-income Americans out in the cold.It would eliminate the local, community-oriented nature of mostcredit unions. There wouldn't be a reason for a true grassrootsmovement like Bank Transfer Day. Taxing credit unions would giveAmericans less, not more.

No, the credit union philosophy is worth more, as panelists inCredit Union Times' Not For CEOs session held lastweek. Panelist Teresa Halleck enthusiastically defended the'not-for-profit, not-for-charity, but for-service' philosophycredit unions bathe in. It's “what makes us not Wells Fargo,” shesaid, pointing out that her San Diego County Credit Union is thetitle sponsor of the Poinsettia Bowl every year.

Banks have bashed credit unions that spend this kind of money,but Halleck pointed out that the bowl falls during a slow economicperiod in her region, and that event brings in money to all thelocal restaurants and shops, helping the businesses and increasinghours and tips for their employees–a very smooth and well-supporteddodge of the banker spin. The credit union philosophy is what helpskeep credit union professionals stopping to smell thepoinsettias.

On the other hand, Greg Barnes with One Nevada CU in Las Vegaspointed out that his credit union serves a low-credit score area,even when it's not in a recession. One Nevada offers payday loanalternatives with educational pieces and incentives intended tosteer members away from the payday loan shops that litter thearea. Plus the credit union's fees are much lower. He said hedidn't want to refer to his credit union as a “second-chance”institution but often that's what it is for members. With the solidwork One Nevada is doing, maybe it won't be one day. Another scorefor credit unions.

California and Nevada Leagues' Carol Payne very enthusiasticallychimed in, “It's about emotions, the emotional attachment membersfeel to their credit union.” Emotional attachments like you'll seein our article this week about how Alabama Telco CreditUnion helped make Glenn Sasser and his late wife's dreams areality.

One wicked curve that credit unions were unable to dodge was theNCUA's 6.1% budget increase for a total of $14.5 million. However,the collective bargaining agreement for the NTEU employees isindexed to the federal pay scale, which means if the federal payfreeze remains in effect, so will it for the NCUA. That would pullthe NCUA budget increase back $12.8 million to a more reasonable$1.7 million. Still, in a time when credit unions are cutting theirbudgets and staffing left and right, in part to deal withregulatory burden coming from the NCUA, CFPB and elsewhere, theagency should do the same.