Although the American Bankers Association is often very critical of NCUA, it appears that the head of one of the ABA’s “branch offices,” Howard Headlee, President of the Utah Bankers Association, has decided to become a big supporter of the federal credit union regulatory agency. Why else would he initiate a divide and conquer strategy between large and small credit unions in the Beehive state in his attempt to change the not-for-profit tax exemption of the three largest credit unions, all state chartered? What he is doing in effect is encouraging these three credit unions to switch to federal charters. When that happens, and it will if the bankers with the help of their well-placed, influential, conflict-of-interest cronies, are successful, the three large, state-chartered credit unions will no longer be under the taxing authority of Utah. Since most other credit unions in Utah know that going after the largest three is merely a foot-in-the-door strategy, many of them can be expected to eventually follow the lead of the big three. It is not far fetched to envision that actions by Headlee and crew in Utah may just be the first step in the elimination of the dual-chartering system for credit unions. The banking industry lobbyists’ thinking is pretty obvious. First Utah. Then Iowa. Then who knows what state will be next? What the ABA has failed to accomplish at the national level after years of trying, they now think they can do by going state by state. They assume that if they get even a modest tax (5% rather than 30%) imposed on only the top tier credit unions in any given state, eventually the banking industry lobbyists will be able to reach its real goal of taxing all but the smallest credit unions out of existence. But as the old bromide goes, there’s no such thing as being a little bit pregnant, or, being a little bit taxed. That’s why credit unions can’t accept any taxation, no matter how miniscule, as long as they continue to meet the criteria of not-for-profit financial cooperatives. Which they still do, regardless of size. State by state, bankers can be expected to target credit unions over $100 million in assets (or whatever size benchmark they settle on). Just as certain, large CUs affected will opt to leave state charters and the discrimination of selective state taxation of n-f-ps behind and add FCU to their names. Since large credit unions represent about 85% of credit union members and assets, that will leave only small credit unions for the states to tax to supposedly help solve their budget deficits. NCUA, which has been concerned over the flight of increasing numbers of mostly large asset FCUs to state charters, must secretly be dancing for joy and trying to think of some subtle way to thank Headlee for creating a compelling reason for state charters to make the switch and take advantage of the growing number of benefits NCUA leadership is instituting for FCUs. As recent history has clearly shown, it is no big deal to switch charters from federal to state. It will be just as easy to make the change back, or switch to federal for the first time. Meanwhile, there are some other things to consider. For example, where is it written that the banking industry should determine how large credit unions can be before they should no longer be considered a credit union? There are no CU size limitations in any legislation or regulations that I am aware of. Turning the tables for a moment, is there some point where a bank becomes larger than rule-makers and regulators think it should be? When is a bank no longer a bank? When it begins to sell insurance products? When it gets into real estate? One of many things bank lobbyists have never been able to understand in the decades that they have been attempting to render credit unions impotent, is that regardless of size, a credit union is a credit union. Based on the Utah logic, banking industry lobbyists ought to be going after $17 billion plus Navy Federal which has been the largest credit union in the world as long as anyone can remember. What do Navy Federal, the three largest credit unions in Utah, and the smallest credit union in Utah all have in common? They are all not-for-profit organizations. They are all financial cooperatives. They all serve the changing financial needs of only their members. They are all owned by their members. They are all tax-exempt. They are all credit unions and maybe soon all will be FCUs! What the bankers also refuse to acknowledge is that credit unions are far from being the only not-for-profit tax-exempt organizations in the country. There are thousands of them out there competing head on with for-profits like banks in health care, insurance, publications, agriculture, etc. Many of them are huge. The Utah situation continues to make headlines on an almost daily basis (see daily updates at But when the final story is written, the bankers in Utah and elsewhere will have won the battle and lost the war (again!). Large, formerly state-chartered credit unions, will have become FCUs. NCUA numbers will have grown substantially. After all the politicking and cloakroom maneuvering to get large state-chartered credit unions taxed, there will be no large state-chartered credit unions to tax. The only state-charters will be small in assets and members and supposedly of no interest or value to bankers because they do not represent a threat to them. Finally, as they always do, bankers continue to underestimate the powerful influence of the state and national credit union grassroots movement, thousands of dedicated credit union supporters who also happen to be voters. In the long run, Mr. Headlee may have bitten off far more than he can chew this time. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman


Credit Union Times

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