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WASHINGTON-While the credit union community breathed a sigh of relief 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 at this time, the committee is looking for greater documentation of the societal good credit unions are serving. Credit union proponents speaking after the hearing faithfully repeated Thomas’ words: “transparency, accountability, verifiability.” Thomas commented at the hearing, “The concern that I have in today’s world.will focus on.transparency, verifiability, accountability. The same kinds of questions the taxpayers would want to know. Are they getting their money’s worth?” But when NCUA Chairman JoAnn Johnson assured the panel that they were, Thomas said that is not enough; it somehow has to be documented. The tax panel was also interested in disclosure of credit union executive salaries. Though NCUA does not collect this information, the rates are set by the boards of directors elected from the membership. Johnson cited a study that showed credit union CEO salary to be 57% of their banking counterparts. Credit unions do need to get the word out on what they are doing to serve their fields of membership, including service to those of modest means, Johnson said. “While we know credit unions are serving folks from all walks of life and are extending service to those in underserved areas, I believe credit unions need to do a better job in telling their story,” she said. “Credit unions have a great story to tell, they just need to make sure their message is being heard.” GECU CEO Harriet May, who represented CUNA at the hearing, said that credit unions take safeguarding 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 the word out could help credit unions avoid mandatory Community Reinvestment Act-type requirements. CUNA has attempted to do this in an organized manner through its Project Differentiation but participation has been limited. CUNA started touting the program as an advocacy tool and moved it to the political affairs department in late 2000, according to Director of Grassroots and Political Involvement Gretchen Drobnyk. However, the program has garnered just over 1,600 participants. The suggested form for credit unions to fill out was revised and simplified in 2003 and both are currently available, but it really did not draw a lot of new participation. When asked if she expected greater participation after the hearings, Drobnyk was unsure. “Our push for credit unions is to continue the education process, not sitting and filling out forms,” she said. “The credit union system does not need to overreact,” CUNA President and CEO Dan Mica emphasized. “We need to take time out. We need to examine the validity of the questions.” He said he intends to get the word out very soon to CUNA members-particularly the larger credit unions-that they need to be looking for ways to distinguish their service to their communities from banks. Mica said he will raise the issue in May, at the very latest, at the next large credit union roundtable. Credit unions have been able to justify their immunity from Community Reinvestment Act-like requirements as recently as 1998 but, given the tenor of the hearing, is CRA inevitable? “That’s a good question. The answer is I don’t know,” NAFCU President and CEO Fred Becker stated. But, he pointed out, this hearing was not in the Financial 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 because this was the Ways and Means Committee that think we don’t really have to worry.” However, the traditional credit unions really do have to worry about the bad apples, he warned. America’s Community Bankers CEO Diane Casey-Landry went a step further. “I think CRA, especially for the larger credit unions, is really inevitable,” she said. The credit union trade associations worked to repeal a CRA-like requirement that the NCUA Board approved for community charters just before it was to become effective. Under the Community Action Plan, credit unions applying for a community charter would have had to explain exactly what they were doing to serve the community. “I stand by what I said five years ago.” then-NCUA Board Member Geoff Bacino, who took the lead on repealing the CAP, said. NAFCU’s Becker agreed. “The CAP had a number of issues with it. It only applied to community chartered credit unions. It only applied to federal charters,” he explained. Bacino added, “It’s tough to regulate behavior and the other thing is, whose standard do you use.” There has to be a better way than applying CRA to credit unions, he concluded. More than potentially regretting the lobbying activity of the credit union trades to repeal the CAP, Casey-Landry said, “I think what the trade associations will regret is they’ve thrown the smaller credit unions under the bus in protection of Navy Federal.” Far from it said Harriet May, whose low-income designated credit union holds more than a billion dollars in assets. “I believe I serve my community the same way my friend at West Texas Credit Union services his community,” she said. West Texas is a $41 million low-income credit union. GECU offers monthly financial education courses in English and Spanish, May said, and has one branch that caters to the community by putting everything in Spanish. “The one thing we’ve always done is cooperated,” she said of credit unions’ fight to demonstrate the societal good they serve. NCUA’s Johnson also defended credit unions’ lack of documentation of credit union service to the underserved. For many credit unions, serving their communities or the underserved is just another day at the office, she said. “Credit union members are the ultimate judge if a credit union is providing service,” she said. “Clearly, annual surveys of credit union members and bank customers indicate credit unions are indeed making an indelible mark on their membership and communities. There is no credible evidence to suggest otherwise.” She continued, “I do not support a one-size-fits all CRA-like program for credit unions.I understand the concerns expressed by some members of Congress and believe credit unions could do more to document their service, especially to those of modest means.” Johnson said she is interested in studying the 5300 Call Report data to see what might be gleaned from that reporting mechanism already in place. “Our basic position is that we are CRA,” Mica said. “We will have to re-evaluate that. We are CRA in action.” CUNA will be submitting additional comments for the record, due Nov. 17, as will NAFCU, and NASCUS is mulling over the idea. Though not represented at the hearing, NASCUS feels their constituents have a stake in the fight too. As it pertains to possibly imposing requirements like CRA on credit unions, NASCUS President and CEO Mary Martha Fortney pointed out that it is a states’ rights issue. “This is a chartering issue,” she said. “This isn’t an insurance issue.” Right now, only Massachusetts has CRA requirements for state chartered credit unions, she explained. However, it is not appropriate for NCUA to get involved in a non-insurance-related issue with state chartered credit unions and Fortney wants the committee to understand that point about the dual chartering system. Both sides of the debate claimed at least partial victory after the hearing. The Independent Community Bankers of America Chief Economist and Director of Tax Policy Paul Merski called the hearing an “historic event,” noting that it had been 20 years since the last time the credit union tax-exemption was investigated. The two key things he highlighted were the NCUA as industry “cheerleader” comment by Thomas and the fact that “it’s not your grandfather’s credit union anymore.” If credit unions are going to continue to enjoy a tax subsidy, Merski added, they should be able to prove that they are serving the mission they were chartered to do. “With the growth in size and scope of credit unions, it seems that this might be the turning point.as it was for the savings and loan industry in the 1950s,” he added. ABA’s Leggett called the hearing “very informative.” He continued, “Clearly what happened is that Congress made clear that the tax-exemption is a privilege and with privilege comes a responsibility.” He added that it also demonstrated that ABA still needs to step up its credit union taxation education campaign because there were still “a number of people very friendly to credit unions on the committee.” “It was a very good airing of the issues on all fronts,” Casey-Landry commented. “Credit unions were able to make their case. We made our case. I think the chairman held a very fair hearing. While Dan Mica was not pleased with the witness list, he was pleased to see Chairman Thomas’ true understanding of the issue. “He had a clear grasp of some of the intricacies that are sometimes used against us, which he clearly didn’t buy,” Mica said, such as the fact an employee-sponsored credit union may not have the opportunity to serve a low-income population. “I think what he’s said is that it’s time for self-examination,” NAFCU’s Becker said. “It’s always time for self-examination.” He added, “The Ways and Means Committee has every right, if not obligation, to be looking into this.” Mica concluded, “Compared with where we could have gone with a last minute tax package.it was a total victory.” [email protected]

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