WASHINGTON-While the credit union community breathed a sigh ofrelief when House Ways and Means Committee Chairman Bill Thomas(R-Calif.) stated during the Nov. 3 hearing on credit unions'tax-exemption that he was not interested in taxing credit unions atthis time, the committee is looking for greater documentation ofthe societal good credit unions are serving. Credit unionproponents speaking after the hearing faithfully repeated Thomas'words: “transparency, accountability, verifiability.” Thomascommented at the hearing, “The concern that I have in today'sworld.will focus on.transparency, verifiability, accountability.The same kinds of questions the taxpayers would want to know. Arethey getting their money's worth?” But when NCUA Chairman JoAnnJohnson assured the panel that they were, Thomas said that is notenough; it somehow has to be documented. The tax panel was alsointerested in disclosure of credit union executive salaries. ThoughNCUA does not collect this information, the rates are set by theboards of directors elected from the membership. Johnson cited astudy that showed credit union CEO salary to be 57% of theirbanking counterparts. Credit unions do need to get the word out onwhat they are doing to serve their fields of membership, includingservice to those of modest means, Johnson said. “While we knowcredit unions are serving folks from all walks of life and areextending service to those in underserved areas, I believe creditunions need to do a better job in telling their story,” she said.“Credit unions have a great story to tell, they just need to makesure their message is being heard.” GECU CEO Harriet May, whorepresented CUNA at the hearing, said that credit unions takesafeguarding members' assets very seriously and do not want to“waste the money tooting our own horn,” but that need has evolved.“You don't have much choice,” she said. Voluntarily getting theword out could help credit unions avoid mandatory CommunityReinvestment Act-type requirements. CUNA has attempted to do thisin an organized manner through its Project Differentiation butparticipation has been limited. CUNA started touting the program asan advocacy tool and moved it to the political affairs departmentin late 2000, according to Director of Grassroots and PoliticalInvolvement Gretchen Drobnyk. However, the program has garneredjust over 1,600 participants. The suggested form for credit unionsto fill out was revised and simplified in 2003 and both arecurrently available, but it really did not draw a lot of newparticipation. When asked if she expected greater participationafter the hearings, Drobnyk was unsure. “Our push for credit unionsis to continue the education process, not sitting and filling outforms,” she said. “The credit union system does not need tooverreact,” CUNA President and CEO Dan Mica emphasized. “We need totake time out. We need to examine the validity of the questions.”He said he intends to get the word out very soon to CUNAmembers-particularly the larger credit unions-that they need to belooking for ways to distinguish their service to their communitiesfrom banks. Mica said he will raise the issue in May, at the verylatest, at the next large credit union roundtable. Credit unionshave been able to justify their immunity from CommunityReinvestment Act-like requirements as recently as 1998 but, giventhe tenor of the hearing, is CRA inevitable? “That's a goodquestion. The answer is I don't know,” NAFCU President and CEO FredBecker stated. But, he pointed out, this hearing was not in theFinancial Services Committee, which would have purview over CRA.American Bankers Association Senior Economist Keith Leggett noted,“Clearly there are some in the credit union industry that becausethis was the Ways and Means Committee that think we don't reallyhave to worry.” However, the traditional credit unions really dohave to worry about the bad apples, he warned. America's CommunityBankers CEO Diane Casey-Landry went a step further. “I think CRA,especially for the larger credit unions, is really inevitable,” shesaid. The credit union trade associations worked to repeal aCRA-like requirement that the NCUA Board approved for communitycharters just before it was to become effective. Under theCommunity Action Plan, credit unions applying for a communitycharter would have had to explain exactly what they were doing toserve the community. “I stand by what I said five years ago.”then-NCUA Board Member Geoff Bacino, who took the lead on repealingthe CAP, said. NAFCU's Becker agreed. “The CAP had a number ofissues with it. It only applied to community chartered creditunions. It only applied to federal charters,” he explained. Bacinoadded, “It's tough to regulate behavior and the other thing is,whose standard do you use.” There has to be a better way thanapplying CRA to credit unions, he concluded. More than potentiallyregretting the lobbying activity of the credit union trades torepeal the CAP, Casey-Landry said, “I think what the tradeassociations will regret is they've thrown the smaller creditunions under the bus in protection of Navy Federal.” Far from itsaid Harriet May, whose low-income designated credit union holdsmore than a billion dollars in assets. “I believe I serve mycommunity the same way my friend at West Texas Credit Unionservices his community,” she said. West Texas is a $41 millionlow-income credit union. GECU offers monthly financial educationcourses in English and Spanish, May said, and has one branch thatcaters to the community by putting everything in Spanish. “The onething we've always done is cooperated,” she said of credit unions'fight to demonstrate the societal good they serve. NCUA's Johnsonalso defended credit unions' lack of documentation of credit unionservice to the underserved. For many credit unions, serving theircommunities or the underserved is just another day at the office,she said. “Credit union members are the ultimate judge if a creditunion is providing service,” she said. “Clearly, annual surveys ofcredit union members and bank customers indicate credit unions areindeed making an indelible mark on their membership andcommunities. There is no credible evidence to suggest otherwise.”She continued, “I do not support a one-size-fits all CRA-likeprogram for credit unions.I understand the concerns expressed bysome members of Congress and believe credit unions could do more todocument their service, especially to those of modest means.”Johnson said she is interested in studying the 5300 Call Reportdata to see what might be gleaned from that reporting mechanismalready in place. “Our basic position is that we are CRA,” Micasaid. “We will have to re-evaluate that. We are CRA in action.”CUNA will be submitting additional comments for the record, dueNov. 17, as will NAFCU, and NASCUS is mulling over the idea. Thoughnot represented at the hearing, NASCUS feels their constituentshave a stake in the fight too. As it pertains to possibly imposingrequirements like CRA on credit unions, NASCUS President and CEOMary Martha Fortney pointed out that it is a states' rights issue.“This is a chartering issue,” she said. “This isn't an insuranceissue.” Right now, only Massachusetts has CRA requirements forstate chartered credit unions, she explained. However, it is notappropriate for NCUA to get involved in a non-insurance-relatedissue with state chartered credit unions and Fortney wants thecommittee to understand that point about the dual charteringsystem. Both sides of the debate claimed at least partial victoryafter the hearing. The Independent Community Bankers of AmericaChief Economist and Director of Tax Policy Paul Merski called thehearing an “historic event,” noting that it had been 20 years sincethe last time the credit union tax-exemption was investigated. Thetwo key things he highlighted were the NCUA as industry“cheerleader” comment by Thomas and the fact that “it's not yourgrandfather's credit union anymore.” If credit unions are going tocontinue to enjoy a tax subsidy, Merski added, they should be ableto prove that they are serving the mission they were chartered todo. “With the growth in size and scope of credit unions, it seemsthat this might be the turning point.as it was for the savings andloan industry in the 1950s,” he added. ABA's Leggett called thehearing “very informative.” He continued, “Clearly what happened isthat Congress made clear that the tax-exemption is a privilege andwith privilege comes a responsibility.” He added that it alsodemonstrated that ABA still needs to step up its credit uniontaxation education campaign because there were still “a number ofpeople very friendly to credit unions on the committee.” “It was avery good airing of the issues on all fronts,” Casey-Landrycommented. “Credit unions were able to make their case. We made ourcase. I think the chairman held a very fair hearing. While Dan Micawas not pleased with the witness list, he was pleased to seeChairman Thomas' true understanding of the issue. “He had a cleargrasp of some of the intricacies that are sometimes used againstus, which he clearly didn't buy,” Mica said, such as the fact anemployee-sponsored credit union may not have the opportunity toserve a low-income population. “I think what he's said is that it'stime for self-examination,” NAFCU's Becker said. “It's always timefor self-examination.” He added, “The Ways and Means Committee hasevery right, if not obligation, to be looking into this.” Micaconcluded, “Compared with where we could have gone with a lastminute tax package.it was a total victory.” [email protected]

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