Then and Now: 1990's Credit Union Issues Today
In honor of CU Times’ 25th anniversary, credit union leaders pondered issues raised in the March 26, 1990 edition of CU Times, and discussed where they stand today.
In March of 1990, the ABA had proposed a three-part tax test for credit unions. As reported by CU Times, under the ABA's plan, a credit union would retain its tax exemption if it had less than $10 million in assets and did not make loans, accept deposits or provide any other services to commercial firms or government entities.
A credit union would also have to maintain a written statement of a single common bond of membership, which must be an affiliation of natural persons based on a common employer, a common place of education, or similar relationship that includes a common objective. According to the ABA, community-based credit unions would fail to meet this test and would therefore be required to pay state, local and federal taxes at the bank rate.
“The world has changed greatly since 1990, but the bankers’ end games have not,” CUNA Chief Advocacy Officer Ryan Donovan said. “They continue to seek the end of the credit union tax status as a means to achieving their real goal—the elimination of a credit union option for consumers.”
According to Donovan, CUNA would not support a threshold for taxation under any circumstances today. However, he said he would not be surprised if bank lobbyists re-proposed their 1990 idea as tax reform heats up in Congress.
“I wouldn't put it past the bankers to try to throw any number of proposals up against the wall to see if something sticks, but the fundamentals of the debate have not changed: The credit union tax status is based on structure and mission,” he said.
In the 25 years that have passed, Donovan said the structure of the credit union system has remained the same.
“We remain member-owned, not-for-profit cooperatives, and we are fulfilling our mission to promote thrift and provide access to credit for provident purposes,” he said.
In 1990, CU Times reported that credit unions were “in the eye of the hurricane” because no legislation that would directly affect the credit union movement was pending before the current session of Congress.
NAFCU President/CEO Dan Berger said credit unions are more up front with members of Congress and regulators now than they were 25 years ago.
“In the past, there were not many bills introduced on behalf of credit unions,” Berger said. “I think it's recognized on Capitol Hill now that credit unions need regulatory relief, and they recognize the good work that credit unions do. Credit unions are in every member's district and there are hundreds of thousands of credit union members in every district, if not millions. Those people are voters. Good policy makes good politics.”
Berger said today, NAFCU would like to see Congress pass the proposed privacy notice legislation, the supplemental capital bill, and the bill that would raise the member lending cap to 27.5%.
“Both sides of the aisle are looking seriously at providing regulatory relief for community financial institutions, including credit unions,” he said. “It's recognized that credit unions did not cause the financial crisis, and some of the mission creep that is taking place among regulators is being closely watched by Congress.”
The 1990 article mentioned GAO and Treasury studies of credit unions that were not expected to be finished until early 1991, and Berger said NAFCU supports a bill currently pending in Congress that would require a GAO study of the NCUA's budgeting process.
The article also quoted NAFCU Chairman John Stanton as stating, “Congress is not listening to the bankers, we should use this year to talk of how strong the credit union community is. Let's tell Congress that we don't want anything but to be left alone.”
Berger said Stanton's statement sounds similar to NAFCU's message during the discussions about the Dodd-Frank Act.
“We were the only trade association to oppose the CFPB for credit unions,” he said. “We really worked hard to be left alone. We said, go after the bad actors, like the Wall Street bankers and predatory lenders who caused the financial crisis, and leave small community financial institutions out of it.”
The split between PSCU and Telecredit Inc., its former sub contractor, was another hot topic in 1990. CU Times reported that six months after the split, both sides contended the market might not be large enough for both of them.
“I have serious doubts about PSCU's ability to survive,” Perry Dawson, a PSCU co-founder who headed up rival Card Services for Credit Unions, which used Telecredit as its subcontractor, said in 1990. “There is just not enough business to justify their overhead.”
Scott Wagner, PSCU's executive vice president of membership development, said PSCU knows now that there was plenty of business to go around.
“Although the number of credit unions has declined over time, the number of credit union members has swelled,” he said. “We’re approaching 101 million now. Back in 1990, there were 15,000 credit unions and 60 million credit union members.”
Wagner pointed out that three of the five credit unions that founded PSCU in 1978 are still members, and 124 credit unions that joined PSCU from 1978 to 1990 are still members.
Former PSCU President Dave Serlo said in 1990 that PSCU retained 850,000 of its 2.2 million accounts, and that a CCSCU member with 25,000 accounts was poised to return to PSCU.
In 1990, PSCU serviced more than 800,000 accounts, and it now services 17.5 million, according to Wagner. 25 years ago, PSCU's revenue was $35 million; by 2014, it had grown to $393.5 million.
“The growth has come from consumers who have joined credit unions over the last 25 years,” he said. “Back in 1990, credit unions were the preference of younger baby boomers who needed help getting established. Now an even bigger generation of people, the millennials, need that same kind of help and credit unions share their same core values—trust, service and community.”
Wagner said PSCU's lines of business focused on credit cards in 1990, and since then, increased competition has led to product development and innovation that has benefited the industry and consumers. He declared that PSCU is better off today than it was 25 years ago because of the range of payments and service options available.
Wagner added the competition for PSCU continues to increase due to CUSOs and other competitors that did not exist 25 years ago.