WASHINGTON-The Nov. 3 House Ways and Means Committee hearing on the credit union tax-exemption demonstrated the back and forth between credit union and bank supporters. During the first panel, NCUA Chairman JoAnn Johnson and the other panelists were peppered with a wide array of questions coming from both sides of the century old argument. Some focused on the lack of coverage of credit unions under the Sarbanes-Oxley Act while others looked to what services credit unions provide and to whom. In Committee Chairman Bill Thomas' (R-Calif.) opening remarks, he asked, “The concern that I have in today's world.will focus on transparency, accountability, and verifiability. The same kinds of questions that taxpayers would want to know. Are they getting their money's worth?” He questioned the ability of a credit union to adopt a community charter that serves all of Los Angeles with a “population greater than 42 states in the country.” Thomas also noted credit unions' expansion into non-financial services-related businesses through CUSOs. Conversely, Ranking Member Charlie Rangel (D-N.Y.) asked “if the public doesn't provide the service and not-for-profits don't provide the service” then what are those of modest means to do? Rangel asked the NCUA chairman if she knew of any tax threat from Congress. Johnson responded that she has not heard anything directly from any lawmakers but that the threat is actually coming from the competition. “The rhetoric is around all the time.when I served as chairman of the Senate Ways and Means Committee back in Iowa, the rhetoric was around then as well,” Johnson explained. Government Accountability Office Managing Director of Financial Markets and Community Investments Richard J. Hillman reiterated remarks from the agency's earlier study that there is a lack of data demonstrating credit unions' service to those of modest means. He noted that NCUA has not put this recommendation into action, but has formed a working group to look at the issue. Johnson stated, “When you're looking to see if you're getting your money's worth, I can tell you, you're getting a lot of bang for your buck.” She cited a University of North Carolina-Chapel Hill study that found North Carolina credit union members alone save an average of $130 a year. Multiplied nationwide, that figure would reach about $11 billion in direct savings. In addition, estimates have said that credit unions save non-members about $4 billion in assets, she said. The $1 billion-plus billion in revenue that could be gained from taxing credit unions is “far offset,” Johnson said, by the savings to consumers. Chairman Thomas reserved his remarks for last for the government representatives and grilled Chairman Johnson at the end. He advocated NCUA collecting CEO salary data, questioning why the agency would resist, and suggested that the regulator request Community Reinvestment Act-like information from credit unions to demonstrate they are serving the public good. Thomas said that Johnson's statements of her beliefs of what credit unions were doing were not enough. Statements of Johnson's such as: “I have no doubt that the benefit is far greater than what revoking the tax-exemption could bring in.” Thomas was continuing his questioning through press time. In prepared statements, the credit union and banking trade associations presented their stark points of view. Harriet May, CEO of Greater El Paso's Credit Union, presenting on behalf of CUNA, made the point that credit unions were created to assure financial services to those of modest means and their tax-exempt status was granted to bolster their efforts. “In fact, this credit union role, as a basis of the tax-exemption, dates at least from as early as 1917 in Massachusetts. Since then, the tax-exemption has been reaffirmed a number of times, including in 1935, 1936, 1937, 1951, and, most recently, in 1998. The 1951 reaffirmation is significant because in that year Congress repealed the tax-exemption for mutual savings banks, specifically because these institutions had strayed from their commitment to mutuality.” NAFCU agreed and built upon that. “Credit union critics have erroneously claimed that some credit unions today are no different than banks and thus should forfeit their federal income tax-exempt status,” Navy Federal Credit Union CEO Cutler Dawson commented. “Such claims simply do not stand up to close scrutiny.” He offered the credit union structure, philosophy, and guiding principles as evidence of this. The bankers predictably contradicted these claims. “Instead of helping people of small means, sophisticated credit unions are expanding into commercial lending,” the American Bankers Association stated. The Independent Community Bankers of America said that credit unions' sheer size and scope merit reassessment of their tax-exemption. “The tax-exempt credit union industry has been growing even faster than commercial banks,” ICBA asserted. America's Community Bankers likened credit unions to the mutual institutions when they lost their tax-exemption. Former NCUA Chairman Norman E. D'Amours did not offer an opinion on whether credit unions should be taxed or not but he did return to his favorite subject for credit unions-CRA. “I am not here to advocate taxing credit unions,” he concluded. “This committee and this Congress in its wisdom can certainly devise methods and criteria that will provide the American taxpayer with some assurance that the great benefit and advantage the tax-exemption gives credit unions is not being abused. Hopefully, as a first step, a much greater degree of transparency will help root out, through exposure, some of the excessive profit motives that have been creeping into and seriously harming the system. At the least, it might give us a clearer picture of who the “free riders” are.” The free riders are those who maintain their tax-exemption on the backs of the credit unions that remain committed to the credit union mission.” -

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