Tax-Exemption, a `Front and Center' Issue in 2006; CURIA, Regulatory Issues Also in Play

Working together, we in the credit union community accomplished a great deal in 2005. We successfully completed an eight-year effort to enact bankruptcy reform, made significant progress on the Credit Union Regulatory Improvements Act, secured House passage of the Net Worth Amendment for Federal Credit Unions, established the groundwork for a risk-based capital system and responded with an outpouring of assistance for the victims of Hurricanes Katrina and Rita. One overriding event, however, eclipsed all other credit union issues in 2005, and it will certainly set the stage for 2006. That issue is the future of our tax-exemption, and the single event was the day-long hearing before the House Ways and Means Committee on Nov. 3. While the hearing is behind us and with Chairman Bill Thomas (R-Calif.) clearly stating that he has no “immediate” plans to change the tax-exempt status of credit unions, a number of unresolved issues remain on the table. Among the most difficult of these is data collection. Thomas clearly asked our industry for verifiability and accountability and indicated that anecdotal evidence is not enough to justify our continued tax-exemption. NCUA has formed a working group to examine this thorny issue and to recommend to the NCUA Board a means by which additional data might be collected, possibly through changes to the quarterly call reports. The working group is apparently on a fast track with the intent of completing its work early in 2006. We must, however, be judicious as we head down this road, proceeding at a pace which is both careful and deliberate, as the results of our work could well define the standards for which the credit union community will be judged far into the future. And, there are a number of questions that we must answer. Let me suggest just a few. For what purpose will such data be collected? Is it to measure whether credit unions are serving their entire membership? If so, what is a fair benchmark for credit unions, which by law are restricted to serving a defined field of membership and not the general public? Should distinctions and comparisons be made with respect to credit unions in general, or by charter type? If the question is one of service to those of modest means, what constitutes “modest means”? Is it “low-income individuals, racial and ethnic minorities and women,” as Chairman Thomas opined during the hearing, or is it some other definition? At the hearing last November, Navy FCU CEO Cutler Dawson stated that he considered the tax-exemption to be a privilege and that his credit union earned that privilege every day through the services it provides its members. NAFCU agrees and believes that this special privilege cannot and should not ever be taken for granted. At the same time, NAFCU wants to ensure that credit unions, which already carry the heaviest regulatory burden in the financial services industry, will be able to continue to provide Americans the low-cost financial services that they deserve without undue regulatory burden. We will be looking for balance as any and all proposals are brought forward. Turning to the issue of transparency, the committee did not seem to be aware that all federally insured credit unions are required to file a quarterly 5300 Call Report. This report includes extensive and comprehensive credit union financial data and is a matter of public record. Also of note, more than 87% of federally insured credit union audits are performed by external auditors or state-licensed persons. In addition, the 1999 bylaws promulgated by NCUA require the posting of a copy of a financial statement showing a credit union’s condition as of the end of the month. These extensive reporting and disclosure requirements that surround credit union financial statements make the process quite transparent. NAFCU has conveyed this fact to every member of the committee who asked questions regarding this issue. Of course, credit unions will face many other issues in 2006 besides the tax-exemption. On the regulatory front, Bank Secrecy Act compliance will, without question, remain a hot issue. It is expected that more rules that are required by the Fair Credit Reporting Act will be finalized in the new year, too, as well as new regulations regarding credit card disclosures as a result of the new bankruptcy law. On the regulatory relief front, CURIA, which was reintroduced last spring, has already garnered more than 100 co-sponsors. This important legislation was clearly furthered by those who took the time to participate in NAFCU’s postcard campaign and other similar efforts to contact their representatives. As a result, when the second session of the 109th Congress begins this month, we will be in a much better position to advance this credit union-specific legislation. Another issue that affected credit unions in 2005 was identity theft, which continues to be a very serious concern. The Federal Trade Commission estimates that the annual total loss to businesses due to ID theft has approached $50 billion, with the total annual cost of ID theft to victims at roughly $5 billion, not to mention the 300 million hours of personal time resolving the various problems associated with it. As an active participant in the effort to combat ID Theft, NAFCU is currently working with the Treasury on several outreach programs and will continue to provide resources to its members. NAFCU pledges that in 2006 we will remain vigilant and politically active to preserve our tax-exempt status, to continue to push for regulatory relief and CURIA, and to protect and defend the credit union charter. We encourage everyone in the credit union community to write their members of Congress, visit them when they are back in their home states and continue to communicate with them in every possible manner. In 2006, we have much to accomplish; by working together, we can make our goals a reality.