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FARMERS BRANCH, Texas – Spurred by a newly-formed task force, the Texas Bankers Association has waged war against credit unions, and the Texas Credit Union League is retaliating. At the heart of the conflict is an article published in TBA’s March 2004 magazine, Texas Banking, entitled “Toppling the tax-free Taj Majals.” In it, the TBA defined the target of its efforts as large community-chartered credit unions and those with multiple non-related fields of membership that have “morphed” beyond the boundaries of the traditional common bond. Photographs of two San Antonio credit unions, $2 billion Randolph-Brooks Federal Credit Union and $1.5 billion San Antonio Federal Credit Union, ran with the article. The TBA Credit Union Task Force, comprised of 18 community bankers from around the state and chaired by Mike Rigby, president and CEO of Liberty Bank in North Richland Hills, Texas, met in late January to develop goals and objectives for pushing “tax and regulatory equality” for banks. The task force will work on the state level to carry out goals set forth by the American Bankers Association’s Credit Union Coordinating Committee. According to the article, the primary goal set by the TBA Credit Union Task Force at their inaugural meeting was to prevent passage of HR 3579, the Credit Union Regulatory Improvement Act of 2003. Other goals include “educating bankers on the threats credit unions pose to bankers and getting them energized and prepared to inform legislators about `morphed’ credit unions and what is happening in terms of their growth and profitability and the need to tax them.” Present at the January Task Force meeting was Keith Leggett, senior economist for the American Bankers Association, who explained the implications of HR 3579, which would increase the business lending authority of credit unions. “If we can’t get banker involvement [to stop the legislation] – if we can’t get them to make a commitment on this issue – then we should just fold up our tents and go home,” Leggett was quoted as saying. Leggett presented ABA research obtained from consumer focus groups and discussions with state legislators that prompted a decision to focus banking community energies on educating lawmakers, and not consumers. The article read, “One message clearly did not resonate with consumers: that credit unions should be taxed to help the state budget deficit..In addition, the consumer focus groups perceived banks as big monopolies, and they viewed credit unions as people-friendly.” But, the article stated, legislators who initially opposed taxing credit unions reversed their positions when presented the message, “If credit unions act like banks, they should be taxed.” Consequently, TBA established the following strategies in its military campaign, dubbed “Operation: Credit Union”: disseminate information on Texas credit union activities to bankers via TBA publications, seminars and Web site; provide links to email addresses of elected officials and sample letters opposing HR 3579 on Web site; develop a commitment form to generate statewide banker participation; create talking points bankers can use to communicate with elected officials; and encourage bankers to attend the TBA Washington Blitz . A review of TBA’s Web site found several previously-noted items already posted. A “CU Task Force Bulletin” spotlights credit union news briefs, such as “Utah Giant Opens Wal-Mart Branches,” and “Choice One FCU Receives SBA-Lender Status.” A commitment form asks bankers to pledge three things: to educate their employees about the issue, write and visit with members of Congress, and ask employees and shareholders to write Congressional representatives. Also posted on the site is a letter from TBA chairman Mike Schnell that puts the brakes on participation in an annual joint credit union/bank technology conference. It states, “In addition, we have decided we aren’t going to fraternize with the enemy. As such, we will not exhibit at the TechMecca Conference in January as previously planned because it is cosponsored by the Texas Credit Union League.” Texas Credit Union League Responds Texas Credit Union League president and CEO Dick Ensweiler notified credit unions of the Texas Banking article by email. “They have you, the largest of our credit unions in Texas, clearly in their sights. You have `morphed’ from being traditional credit unions and it isn’t fair to the bankers who are struggling to make a go of it! Never mind their record profits. Never mind that banking industry surveys show that bank CEOs believe big banks are the competition feared most by community bankers. The TBA and ABA can hardly have banks fight each other. So their targets are the `morphed’ credit unions..We are preparing to do all we can to dispel the notion that credit unions have changed.” What that entails, the email explained, is working with key policy makers statewide to ensure they understand the not-for-profit cooperative structure of credit unions, a critical move as the Texas Legislature is expected to begin an emotionally-charged special session to explore additional means of funding public education. According to the email, TCUL will be seeking assistance from political consultants in effective communication of its message. Ensweiler also attached a copy of a letter that was sent to all Texas Congressional Representatives the week of TBA’s trip to Capitol Hill, making them aware that some of the banks operated by members of the TBA Credit Union Task Force claim subchapter S status under federal tax laws, which enables them to avoid corporate taxation. “For example according to filings with federal regulators, Liberty Bank in North Richland Hills, Texas, paid no federal income tax in 2002 even though they had $1,451,000 in net income,” the letter stated. “Liberty Bank is run by R. Michael Rigby, who is chairman of the TBA anti-credit union task force. Other banks that paid no federal income taxes in 2002 whose leaders are part of the task force attacking credit unions include: Houston Community Bank, and First State Bank in Spearman. How can our not-for-profit tax exemption be a cause for competitive disadvantage, given that these for-profit banks pay no federal corporate taxes?” In addition, a March 12 letter penned by Ensweiler (as CUNA Chairman) was sent to the editor of American Banker urging bankers to “stop the bellyaching and distortion on credit unions.” He compared credit union/bank statistical data and advised bankers to quit pretending credit unions were a threat to their livelihood and that “the nation’s banking industry is typified by small-time operations on the Main Streets of America.” In the letter, Ensweiler reiterated one of his common themes. “If bankers.really think that credit unions have such a sweet deal, let those banks switch charters and become credit unions..To date, no bank has ever changed its charter to a credit union, because such a change would limit the way and level that banks could make money,” he said. “We never expect a bank to ever make such a change.” In a followup interview to this story, Ensweiler reported that he had sent a second letter, dated April 2, to the editor of American Banker, taking issue with comments two bankers had made about credit unions. “They still don’t get the fact that it’s all about structure. It doesn’t relate to how big you are or what products and services you offer – that’s not what the tax code is built on,” he said. “We have so much to work on together [with banks] – bankruptcy reform, privacy legislation, regulatory relief from burdensome paperwork. Why would you want to fight an ally that could help get it done?” Ensweiler said it’s not surprising TBA would target legislators rather than consumers with their anti-credit union message. “The public doesn’t buy the bankers’ message, so TBA’s not going to waste their money on consumers. They’d rather use their muscle and influence on legislators.” Can credit unions expect to win the competition with banks for lawmaker loyalty? “We have always held our own,” Ensweiler said, “and I think we are well positioned to maintain our ground. Banks are strong, but we’re doing our best, and we hope that’s enough. -

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