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CHICAGO – Australian credit unions have had to pay taxes since the early 1990s and since then have seen a marked decline in their numbers as well as a move away from the culture of the movement they once embraced and helped them thrive. As credit unions in the U.S. face continued efforts by bankers to reverse their tax exemption, there are several lessons they can learn from the experiences of Australian CUs. Mark Lynch, former Deputy Chairman of Australian National Credit Union, Australia’s largest credit union and the Volunteer & Resources Manager with the Australian Credit Union Foundation, shared some of those lessons with state regulators and credit union representatives at NASCUS’ 40th Annual Conference & Symposium. Currently living in Michigan with his family and working as a Credit Union Development Educator and serving as a member of the Michigan Credit Union League Family Involvement Council, Lynch explained that until the late 1980s, Australian CUs closely resembled U.S. credit unions – they were led by the National Industry Association, there were state leagues, active chapters and fields of membership that were regulated. In addition there was a significant involvement by volunteers, many founders of credit unions were still involved (the Australian CU movement is much younger than the U.S.’s) and directors weren’t paid. The early 1990s saw several radical changes on the Australian CU landscape that led up to the government’s eventual decision to rescind their tax exemption, beginning with a major restructuring of the movement. According to Lynch, Credit Union Service Corporation of Austrailia Ltd. (CUSCAL) became the industry association and service company, state leagues voted themselves out of business, and without Leagues’ support many chapters disappeared. In addition, he said, the larger Australian CUs began to “abandon” their fields of membership, credit unions began perceiving volunteers as being unprofessional and discouraged their involvement, and many credit union founders discontinued being involved with the very CUs they helped start. Coupled with those changes, Lynch added, directors of Australian CUs began to be paid, CUs increasingly became less socially involved and the quality of board governance standards weakened. Lynch stressed that “at no stage did Australian banks campaign for credit unions’ taxation or work to convince the government to repeal their tax exemption.” Ironically though that wasn’t necessary. All the changes credit unions were going through on their own made it easier for the government to introduce taxes for credit unions. Elected officials pointed to breakdowns in CUs’ fields of membership, their high costs and inefficiencies, and poor governance practices to justify their decision. Moreover, Lynch said as CUs expanded the products and services they offered, the government said they were behaving like banks anyway, and so taxing them made sense. “The Australian credit union taxation fight was lost because the movement was totally unprepared, they assumed the Labor government that supported credit unions would protect them,” said Lynch. “In addition, some credit union leaders supported the tax. Some felt it was inevitable and took the attitude of `why fight it’. Others thought paying taxes was a social obligation.” Just as important, Lynch said that with no state leagues, “there was no venue at the state level for those credit unions that were opposed to taxes to do anything. Credit unions were unable to articulate the credit union difference. The government thought since credit unions behaved like banks they should be taxed like banks. We had no strategy beyond lobbying the government.” How has the Australian CU movement changed since the advent of taxation? For one thing, there are almost half as many CUs now as there were before taxation – 175 compared to 329, their loan share is down from 5.5% to 4.4%, and the total number of branches is less than half what it used to be – 936 versus 2,615. The number of members is about the same – currently 3.5 million – but interestingly CUs’ total assets are up to $30.2 billion from $16.3 billion. “The total culture of Australian credit unions has changed, Australian credit unions today see themselves as small banks,” said Lynch. To emphasize his point, he cited slogans some Australian CUs are using – “Credit unions, a different kind of banking” (the Australian Credit Union Movement); “Australia’s Friendliest Bank” (Australian National CU); “Credit Union Australia, banking where you belong” (Credit Union Australia); “intelligent banking” (Members & Education CU); and “Personal banking” (Queenslanders Credit Union). “Banking is the word,” said Lynch. “The trend is to emphasize the different kind of banking credit unions offer rather than emphasizing the difference between credit unions and banks.” Lynch said some CUs are even making noise about withdrawing from international development. What’s more, he said, is there is more intense competition between credit unions. “The ability for the movement to agree on anything is very hard,” he said. “Educating members about cooperative ownership is seen by many credit unions as being irrelevant,” said Lynch, adding that “there are no strategies to engage with youth. In fact in some cases just the opposite is true.” Lynch stressed to attendees that “American credit unions must do the sort of things Australian credit unions didn’t. Don’t see the campaign to retain your tax-free status as being a nuisance, build it into your core values. Educate your members on the benefits of cooperative ownership and explain to them what the credit union difference is all about. Value and practice credit union principles.” He went on to emphasize that credit unions should retain their fields of membership and communities of interest. “I’m not saying credit unions shouldn’t go to community charters, but if they do that then they have the obligation to carry on the credit union principles and not just see their community charter as a marketing opportunity. “U.S. credit unions should look for strategies to avoid mergers and don’t just see them as a quick fix,” he continued. “U.S. credit unions must stay a united and cooperative movement, retain their broad based structures and stay involved in community values. They have to encourage involvement and participation at all levels and don’t just see the threat only coming from one direction. Lastly, they must communicate, communicate, communicate.” -

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