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CUNA Says No Evidence of Credit Union Tax Exemption Causing Inequities in the Market Exists. WASHINGTON-CUNA’s Economics and Statistics Department has released a formal response to an Independent Community Bankers of America-backed study that CUNA calls a `baseless’ and irresponsible attempt to disparage credit unions. “As alternatives to for-profit banks, credit unions earn their tax-exemption daily by remaining true to their traditional structure as democratically controlled, not-for-profit, volunteer-directed and member-owned financial cooperatives,” CUNA President and CEO Dan Mica commented. “This rebuttal shines bright light on the bankers’ baseless claims and feckless attempt to define credit unions – revealing another feeble effort by a banker trade association to build public support in their campaign to hobble credit unions.” CUNA’s 12-page paper is in response to a study released by ICBA and the Tax Foundation around the time of CUNA’s Governmental Affairs Conference that said credit unions should be taxed and they provide no financial benefit to their members. “We picked out four points in their study that needed rebuttal. Frankly, it wasn’t all that difficult-it wasn’t like an independent analyst went out there and did a study and came up with the result,” CUNA Chief Economist Bill Hampel said. “It looked like they were stretching to kind of support their conclusions.” First, he explained, ICBA’s study indicated that credit unions should be taxed because service options and field of membership have grown. “Of course credit unions didn’t offer credit cards and money market accounts and certificates of deposit in the 1930s because they didn’t exist,” Hampel remarked. “They now do so, they now offer them.” Additionally, CUNA’s report states that credit unions still must adhere to field of membership restrictions, which never were the basis of the tax exemption to begin with. CUNA even quotes Congress as stating in the findings of the Credit Union Membership Access Act, “Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because they are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.” Second-and what Hampel termed “most surprising”-the banker study claimed that credit unions do not provide financial benefits to their members, “which just flies so much in the face of all the evidence that anyone has about credit unions.” He noted that credit unions pay higher savings rates, charge lower loan rates, and assess fewer and lower fees. According to CUNA data, credit union members benefit by $6 to $6.5 billion a year by doing business with the non-profits. CUNA cited 2004 monthly average rates from Datatrac on a number of lending instruments that found credit unions 1.70 percentage points lower than banks on 60-month new car loans and over two percentage points better on 48-month used car loans. Mortgages were nearly identical. And credit union regular savings rates were 0.27 percentage points higher, while money markets were 0.41 percentage points higher, and five year CDs were 0.32 percentage point higher. The tax study also claimed that credit unions use their tax exemption to generate high returns to owners, according to Hampel. “I’m not quite sure they understand that, but they say we do that by building up net worth in credit unions, forgetting that the government has this rule called Prompt Corrective Action that tells us to build up net worth in credit unions.” Finally, Hampel states that one of the study’s theoretical rationalizations for taxing credit unions is that “giving tax exemption to one group of entities and not another creates inequities and disruptions in the market.” The economist stated that obviously that does not show up in banks’ profitability or growth rates, which have been posting record numbers. “But further, if it is wrong to give one sub-sector of an industry a tax exemption, they’re remarkably silent on why Subchapter S banks should have any form of a tax exemption,” Hampel added. CUNA’s rebuttal concluded, “Finally, for a PhD economist, the ICBA paper’s author strangely avoids customary quantitative analysis. Single-point financial comparisons and abstract supply and demand graphics may seem impressive to the untrained eye. But these are a very poor substitute for the standard rigorous statistical techniques that his peers would deem a fundamental component of serious research.” CUNA Senior Vice President of Governmental Affairs John McKechnie called ICBA’s release of this study at the opening of CUNA’s Governmental Affairs Conference a “heavy handed attempt to rain on our parade on Capitol Hill.” What is more is that it did not work, according to the seasoned lobbyist. “One of the interesting things that we saw.the reaction we’ve gotten from the Hill staff is simply one of `So, what else is new?’” McKechnie said. “The banks are objecting once again to the credit union tax exemption. They never have liked it. They constantly complain about it.” Though he called the ICBA-sponsored study “remarkably stale” and “easy to refute,” it was still important to set the record straight. CUNA is distributing its analysis of the ICBA tax study around Capitol Hill and providing it to the leagues to rebut the study in the local markets where it has been distributed, according to CUNA Vice President of Communications and Media Outreach Pat Keefe. -

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