Credit unions fire back at community bankers over tax status

In a Thursday letter to Treasury Secretary Timothy Geithner, the Independent Community Bankers Association (ICBA) argued bad investments by credit unions have led to a “bailout” of several corporate credit unions during the past 18 months by the National Credit Union Administration (NCUA), an independent federal agency. 

That move “should cast doubt on the wisdom and the fairness of their tax-exempt status,” the ICBA letter said. 

Credit union representatives say the recent takeover of several credit unions doesn’t constitute a bailout, and “the taxpayer isn’t being stuck with the tab as they are with community bank bailouts of TARP and the small business lending fund, said Dan Berger, executive vice president of government affairs at the National Association of Federal Credit Unions (NAFCU) in a letter to Treasury. 

“While ICBA complains about a handful of credit unions that have been placed into conservatorship by the NCUA, perhaps they should focus on the record of their regulators and the 269 banks that have failed in the same time frame,” he said.  

While community bankers railed against credit unions’ tax-exempt status, Berger said nearly 2,500 community banks are subchapter S corporations, about one-third of all banks, “and receive their own special tax treatment and exempt status.”  

“In this time of record deficits that are increased by “deadbeat” community banks, perhaps the better course of action would be to examine the status of these S corporations that continue to drink at the trough of TARP and the American taxpayer,” he said.

Cheney also refuted arguments by community bankers that credit unions made bad investments. 

“The corporate credit union situation was caused by highly rated investments made by the corporate credit unions going sour during the most significant financial crisis of the last 80 years,” he said. “The problems that credit unions are paying for today — with their own money, not taxpayer money — have nothing to do with imprudent lending standards.”

Cheney said credit unions will pay the costs — there are about $50 billion in troubled assets, estimated to return around $35 billion. Of the $15 billion loss, credit unions have already paid $7 billion and “are fully prepared to pay the remaining $8 billion through the corporate stabilization fund.”

“No matter what the amount, credit unions have the resources, and have been given an extended amount of time — until 2021 — by the Congress and the Treasury Department, to pay the bill,” he said.