The powerful chairman of the tax-writing Senate FinanceCommittee is questioning whether credit unions still deserve theirtax-exempt status.

“I am concerned that the credit union industry is evolving inways that take many credit unions further from their originaltax-exempt status,” Senate Finance Chairman Orrin Hatch (R-Utah),said in a letter Wednesday to NCUA board Chairman J. MarkMcWatters.

Hatch said that the NCUA has relaxed field-of-membershipconstraints, opened the door to the use of alternative capital andlifted limits on business lending.

“While these may be worthwhile pursuits, they should give uspause and cause a reflection on the core mission of credit unionsand their tax-exempt status,” Hatch wrote.

This new threat to the credit union tax status comes at a timewhen credit union trade groups had declared victory since the taxoverhaul bill that was enacted last year preserved the tax-exemptstatus.

However, Congress is likely to consider a technical correctionsbill to the tax overhaul legislation, which could open the door toa renewed review of the credit union tax status.

And Hatch is not subject to the usual political pressure thatcomes from raising such a divisive issue, since he is retiring atthe end of the year.

In the letter, Hatch said that the federal credit union commonbond requirements have been watered down through “regulatory interpretations and a dearth ofenforcement in recent decades.”

He said that while state credit unions and nearly all othertax-exempt organizations pay Unrelated Business Income Tax onincome derived from outside activities, federal credit unions donot.

And he said that federal credit unions do not have to file anIRS Form 990 that would disclose executive compensation.

He said the NCUA did not implement a 2006 recommendation fromthe Government Accountability Office, which would have requiredthat credit unions disclose their executives’ compensation.

And Hatch posed a series of questions about NCUA oversight thathe requested McWatters answer by April 6.

Credit union trade groups immediately defended the tax-exemptstatus.

“As the only depositor-owned, democratically controlled optionin financial services, credit unions' mission is to promote thriftand provide access to credit for members, particularly those ofmodest means,” CUNA President/CEO Jim Nussle said. “That’s amission they have fulfilled for more than 70 years, throughmultiple financial crises, and it’s a mission that remainsunchanged today.”

He added that the NCUA has ensured that its rules andregulations are compatible to the modern financial servicesmarketplace—allowing safe and affordable products and services.

He said that CUNA research found that broader fields ofmembership create substantial benefits to credit unions and theirmembers and enhance the overall safety and soundness of thefinancial sector.

In a letter to Hatch, Carrie Hunt, NAFCU’s executive vicepresident for government affairs and general counsel wrote, "Thecredit union tax exemption has long provided tremendous value tocredit union members and the overall economy of the UnitedStates.”

And she added that credit unions are best regulated by anindependent NCUA.

On the other hand, representatives of the banking industryapplauded Hatch’s questions.

“Credit unions were chartered by Congress to enable people ofsmall means with a ‘common bond’ to pool their resources to meettheir basic deposit, savings and borrowing needs,” said CamdenFine, president/CEO of the Independent Community Bankers ofAmerica. “While some credit unions operate that way today, the NCUAhas enabled others to grow their membership and their markets wellbeyond their statutory mission.”