Credit Union vs. Banker Debate Punched Up with Jabs and Occasional Right Hook; Blaine Compares Banks to Brothels

WASHINGTON-The debate between State Employees Credit Union CEO Jim Blaine and American Bankers Association Chairman Ken Fergeson during CUNA’s Governmental Affairs Conference was peppered with colorful language, barbs, and not much agreement on the antagonistic issues between credit unions and banks. The debate began with an air of joviality; Fergeson opened with a joke but then got down to discussing the merits of the bankers’ case in subduing credit union expansion. He began by explaining that his $270 million NBanC competed directly with Tinker Federal Credit Union, a $1.25 billion institution. “Every morning they go out and have a 30% advantage,” he stated, referring to their tax-exempt status. Fergeson added that the credit union was originally started to serve the local Air Force base but has since expanded throughout the state. “Size comes from service,” Blaine returned. “ABA has run that dog a lot but taxation isn’t the reason credit unions are successful,” he added. Blaine compared banks to brothels, saying the reason people flock to credit unions is because, with a bank, “You know it’s going to cost an awful lot of money and you know you’re going to get screwed.” He also pointed out that every dollar at a credit union gets taxed through its members. In laying out the taxation of non-profits issue, Blaine asked Fergeson, “What’s 40% of zero?” Blaine answered for himself, “Zero.” Fergeson argued that credit unions’ retained earnings are never taxed, but Blaine countered that credit unions pay most taxes except for federal income taxes. He made a point of the fact that roughly 20% of the banking industry has been organized as Subchapter S banks, which do not pay taxes at the corporate level, calling them “tax dodging rascals.” Fergeson suggested credit unions be taxed at the Subchapter T level (similar to Sub S) like other cooperatives. He added that he was mostly concerned about this “new breed” of large credit unions “being all things to all people.” Debate Moderator Dean Anason, American Banker Washington bureau chief, asked Fergeson if the banks’ pursuit to expand Sub S undermines their argument about credit unions’ tax advantage. “I don’t think so at all. Sub S has been around a long, long time.Banks have only been able to use it the last couple of years.” Blaine asked Fergeson if he thought it was all right to have different taxes for different structures, to which he responded yes. Blaine next made the point that ABA is a non-profit but if they did make a profit, it would have to pay taxes. Fergeson agreed. Blaine quickly added, “And if they don’t, they don’t. It sounds fair to me.” He followed up with an offer from NBanC to convert to a credit union. Anason next asked Blaine about why credit unions experienced such a drop in the annual Gallup customer satisfaction survey. He replied, “Malarkey.” Blaine continued, “We’ve had so many new members coming from banks, we haven’t had time to rehab them all.” Fergeson said Blaine’s characterization of banks as money-grubbers was unfair. “Community banks throughout the nation wake up every morning thinking how can I serve my members better.” He also emphasized that the banks are not afraid of a little competition. “Competition is good and we want to have competition. We just want to have a level playing field,” Fergeson said. Members of the audience were also invited to ask questions. One attendee inquired of both Blaine and Fergeson, if their institution were to close down today, how many would get paid out from the reserves. Blaine with more than $11.3 billion in assets in his institution answered over one million members. Fergeson, whose bank holds over $270 million in assets, responded 15 stockholders. Following the debate, Blaine said he and Fergeson were “OK;” Fergeson said they even hugged. The banker told Credit Union Times, “I enjoyed it a lot more than I thought I would.” He said he wished there was more time to get into the issues. Some observers however thought the anti-bank comments were a little too dirty at times. [email protected]