No FOM, Is There a Risk?

My credit union is not allowed a FOM expansion as a geographically based community FOM, nor is the NCUA currently willing to consider adoption of a more flexible basis for expansion. Increasingly, I am frustrated with large credit union competitors with apparent national FOMs ignoring FOM qualifications (abuse?).

Disagreeing with a regulation is not the basis for ignoring it. In a group meeting at NCUA, I requested of Mr. McWatters that the agency consider applying the same criteria used to deny my request in their consideration of the proposed regulations for associational FOM or allow us provision to expand. Mr. McWatters understood exactly what I was requesting and he amusingly responded, "What, you want consistency?"

Let's get down to the crux of the issue. Making a minor correction to a quote Mr. Bruen assigned to me in his article in referring to the abusers of the FOM system, I didn't say, "Tax them." I said, "There is an existing charter that allows them to do what they want, and they are taxed." Though it sounds similar, there is a distinct difference.

I believe there is a risk for the credit union industry in assuming the structure of financial institutions, in this case mutual savings banks, that are already taxed.

This concern comes from an earlier portion of my career when I spent 15 years in a mutual savings bank. We were mutually owned, no FOM or limit to membership, no capital stock, but the board of directors were paid and they paid taxes.

Mr. Bruen states, "A credit union's FOM has nothing to do with its tax exempt status. It is based on the credit union's not-for-profit corporate structure, organized without capital stock, and operating for mutual purposes."

I think most will acknowledge the similarities, so let me comment on that not-for-profit structure.

When a credit union uses frivolous associations for the sake of growth, enters out-of-state markets and offers 3% incentives to auto dealers, displaces the indirect lending of existing local credit unions and levies higher loan rates to consumers because of those incentives, I submit that it is growth for growth's sake and is exploiting the not-for-profit privilege accorded credit unions in the tax code.

I would submit that those who advocate for the removal of FOM, risk the loss of our tax exemption for the entire industry. All the efforts, promotions and resources spent in the last few years for protection of our tax exemption could be at risk.

We are obviously not the most influential player in the halls of power. It would only take a single federal judge to side with the bankers that FOM was the only material difference between us and mutual savings banks. Does anyone remember Judge Green and HR 1151?

There are those who feel that it is inevitable that we are taxed and are prepared for that prospect. Are you?