The ABA's Banksplaining Machine Just Won't Quit
Bankers' arguments for taxing credit unions are the political messaging version of a visit from your loud, possibly drunk and judgmental aunt.
Like Daylight Savings Time, New Year’s Eve, dentist appointments and oil changes, you can count on certain things happening each year in our lives. But let’s add one more thing to that list: Arguments for taxing credit unions by bankers.
It’s the political messaging version of your loud, and possibly drunk aunt coming over to your house to catch up and make you feel bad about the choices you’ve made in your life. But you hold firm in your choices and politely defend them without showing too much emotion. And then she’s gone until next year. You stew for a while and complain to your spouse and then move on.
That feels like the life cycle of the pro/con messaging battle between the banks and credit unions. This argument has been going on for years with zero change to the tax status for credit unions. You can argue that it’s just a matter of time before the tax status is removed. You can also argue that pulp-free orange juice tastes better than that disgusting pulp-filled version that only, I assume, psychopaths drink. That argument will get you just about as far as this back-and-forth messaging from both sides.
Tracing back this tit-for-tat, or tit-for-tax, you can find letters from the American Bankers Association to Nov. 18, 2004. I’m sure there are more, but this is as far back as their site goes for this particular topic.
The letter was calling into question the credit union capital and rules for governing the Prompt Correction Action to limit exposure to the Share Insurance Fund.
“By moving away from the concept of ‘member-owned’ equity towards a reliance on capital contributions from non-members, the very essence of a credit union’s ownership structure is called into question.”
It was a letter from ABA Senior Economist Keith Leggett to then-secretary of the NCUA board, Mary Rupp.
There is a document on the ABA’s site from July 11, 2002 called “The Changing Face of Credit Unions.” But since I don’t have ABA credentials or access to this, I don’t know what it said.
Fast forward to July 27, 2007 with the ABA’s letter to then-U.S. Department of Treasury Secretary Henry Paulson, Jr. In this letter the ABA decided to work in a new talking point and/or political label to see if it would stick – the “new-breed credit unions.”
The context of the letter was to show the ABA’s support of Secretary Paulson’s efforts to identify wasteful use of tax preferences.
The ABA turned on its political machine and churned this out:
“Many traditional credit unions continue to hold true to this mission. However, a newer breed of credit union has grown rapidly, leveraging their tax-preferred status, and serving only those segments of the community they choose to serve. These credit unions are altering their charters in order to include millions of people within their field of membership. In fact, there are 123 credit unions operating today with more than $1 billion in assets – making them larger than 92 percent of banks. These new-breed credit unions also offer a wide range of complex financial products – including business loans, trusts and asset management serves, and investment products – making them virtually indistinguishable from taxpaying banks.”
OK, let’s slow down there with the banksplaining ABA.
It is interesting that the “new-breed” language was not found again in any of the ABA letters to lawmakers. Maybe it was too confusing since most probably don’t even fully grasp the cooperative principles? Or maybe lawmakers read “new-breed” and thought the letter should have gone to the Department of Agriculture? Whatever the reason, the ABA appeared to quickly move on from it.
Eventually the ABA tried to put the message into language lawmakers might understand, calling the credit union tax exemption the “single largest corporate tax loophole” and that the loss in tax revenue could instead be going to “lifesaving research into heart, lung and blood diseases.”
The one constant thread of the ABA’s message has been its narrow interpretation of the credit union industry’s mission to serve consumers of “small means.” It wants to make sure credit unions stay relatively close to the size they were when credit unions began, and appears to want lawmakers to read the credit union charter as originalists, as many people do with the United States Constitution. What was said and meant on day one cannot be changed or amended, or evolve.
In the past three years alone, the ABA has ramped up its alarmist messages to lawmakers with at least eight specific letters combining the tax-exemption issue with the credit union/bank acquisition issue. According to a June 27, 2019 letter to the NCUA’s then-Chairman Rodney Hood to celebrate the 85th anniversary of the Federal Credit Union Act, the ABA took that opportunity to reveal research it had funded in which it claimed to have proof that credit unions were possibly a “contributing factor to the widening of economic inequality.”
It stated, “The report details how credit unions are increasingly using their tax advantage and regulatory supports to expand membership with higher-income customers, make high-risk loans without adequate capital, and even buy up taxpaying community banks.”
By the way, the research was done by a person who owns a big bank-friendly think tank in Washington D.C. and who has done presentations for The Federalist Society (a highly conservative organization in D.C.).
Oh, and let’s not forget the shadow website explorecreditunions.com, a site that was weirdly set up to look like it was pro-credit union, but was a site dedicated to pointing out the evils of credit unions. At CU Times, we spent about a year trying to find out who was running it and even had web specialists take a look to see what they could find out. They showed us that all identifying owner codes were removed and even the code inside the images was removed. We had suspicions the ABA was behind it, but it wasn’t until one of our reporters finally got confirmation from sources that it was the ABA running it, along with funding from a right-wing Political Action Committee, that the ABA fessed up in its own way and linked the site to the ABA website.
Where are the political winds heading? What messages are getting through to lawmakers? Fortunately for credit unions, there doesn’t appear to be a lot of political interest in the issues the ABA continues to raise. Most likely because the credit union space is still so small in comparison to the rest of the financial industry.
The ABA’s focus, for now, appears to be on the dangers to our country if credit unions continue to acquire banks, arguing that these acquisitions will remove millions from our tax base.
The questions I have are, what will be the message that sticks? Or does it matter? The ABA plays the long game so that one day politicians will listen. Will that day ever come? No matter what, the ABA will keep trying to find the right words.
Michael Ogden Editor-in-Chief mogden@cutimes.com