Independent Banker - June 2018 - 35

and soundness issue " in the industry's Share
Insurance Fund, which insures deposits held in
credit unions. Acknowledging the reliance of the
insurance fund on taxpayer subsidies only raised
new concerns about the growth of the credit
union industry and management of the fund.
The McWatters letter was a response to a January
message from Hatch expressing concern
that credit unions might be operating beyond
their tax-exempt purpose. Noting that the credit
union tax exemption is valued at approximately
$2.9 billion this year alone, Hatch stated that
foregone revenue requires the federal government
to closely oversee the credit union industry
and ensure it is fulfilling its intended purpose.
ICBA responded by noting that tax-exempt
credit unions have for too long enjoyed the benefits
of competing with taxpaying community
banks. In an April 24 news release, then-ICBA
president and CEO Cam Fine noted that total
business lending by credit unions ballooned from
$13.4 billion in 2004 to $56 billion in September
2015, an annualized growth rate of 14 percent.
Subsequently, ICBA called on Hatch to convene
a hearing on the credit union industry's tax
exemption. In a letter to the committee chairman,
ICBA said modern credit unions have failed
in every aspect of their public mission and pose
a threat to the American tax base. " It is widely
understood but rarely acknowledged that the tax
exemption has outlived its purpose, " ICBA wrote.
" Now is the time to have that discussion. "
October 2016 final rule, which significantly
expanded the service areas in which community
credit unions can do business.
The ruling overturned two key provisions of
the rule. One automatically qualified combined
statistical areas with fewer than 2.5 million people
as local communities. The other increased
the population limit for rural districts to 1 million
people. The ruling left in place two other
provisions challenged in the lawsuit: one on
serving core-based statistical areas without
ICBA has waged
a years-long fight
against the captive
regulator's lax and
outright benevolent
treatment of the
industry it is charged
with overseeing.
serving their urban core, and another on adding
" adjacent areas " to existing community fields
of membership.
An overdue reckoning
The discussion has finally arrived due in no small
part to the NCUA's conduct. ICBA has waged a
years-long fight against the captive regulator's
lax and outright benevolent treatment of the
industry it is charged with overseeing. In his
January letter to McWatters, Hatch cited several
of the NCUA's ICBA-opposed actions, including
rules easing federal standards on credit union
fields of membership, commercial lending and
alternative capital.
These initiatives have begun to get pushback
not only from Capitol Hill but also from the federal
judiciary. In March, a federal judge vacated
two provisions of the NCUA's field-of-membership
rule. The ruling in an ICBA-supported
lawsuit against the NCUA limits the agency's
Quick stat
$2.9
billion
Value of credit
union tax
exemption for
2018
In a friend-of-the-court brief, ICBA and its
state affiliates said the agency's deliberate violation
of statutory restraints to enlarge credit
unions' geographic reach is part of an ongoing
campaign to promote the credit union industry-
one that has led to more than $1 billion in legal
fees to private law firms.
Established as not-for-profit institutions to
serve individuals of modest means, the $1.36 trillion
credit union industry now earns billions of
dollars in profits every quarter and features outsized
CEO salaries while remaining tax-exempt.
ICBA continues to challenge both the tax exemption
and the NCUA's attempts to drastically
increase the powers of these tax-exempt financial
firms. Those efforts appear to be making headway
in the nation's capital.
independentbanker.org Q 33
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Independent Banker - June 2018

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