ICBA Asks Biden Administration to Support Credit Union Taxation

The nation’s community bankers are calling on the Biden Administration to support legislation imposing a tax on credit union acquisitions of banks.

“We believe such transactions flout the original purpose of the credit union tax exemption, to serve people of modest means, and request that you direct your attention to this issue and take appropriate steps, administratively and in conjunction with Congress,” Rebeca Romero Rainey, president/CEO of the Independent Community Bankers of America, wrote in a letter to Treasury Secretary Janet Yellen on Wednesday.

Banking trade groups have been arguing that because they are tax exempt cooperatives, credit unions pose unfair competition for other financial institutions. They point out that if a credit union purchases a bank, it takes the bank off the tax rolls.

In his own letter to Yellen, B. Dan Berger, president/CEO of the National Association of Federally-Insured Credit Unions, said that the bankers’ arguments amount to a “Trojan Horse,” adding that the closing of bank branches in many communities is a serious problem.

Romero Rainey cited statistics that she said show an increase in the number of credit union-bank transactions. She said that before 2012 there were only two or three such deals each year. Her statistics show that number increased to 13 in 2018 and 21 in 2019.

She included a legislative proposal with her letter. If implemented, the proposal would impose an exit fee equal to 10% of the gross value of the acquired bank’s assets or liabilities, as shown on its most recent balance sheet, whichever is greater. The exit fee would be paid by the credit union. “The purpose of the proposed fee is to capture part of the lost value of taxes that would have been paid by the bank going forward had it remained independent or been acquired by another tax-paying bank,” she wrote.

There is precedent for imposing a fee or excise tax on tax exempt organizations when they engage in activities that are not tax exempt, according to Romero Rainey. She said, for instance, political expenditures of certain tax-exempt groups are subject to an excise tax.

Romero Rainey said that if Congress lacks the appetite for creating full tax parity between credit unions and banks, policymakers have other alternatives: taxing the largest or most growth-oriented credit unions, taxing credit union commercial lending revenue, taxing credit union marketing expenditures above a certain threshold, creating an option for states to tax federal credit unions or subjecting bank purchases by credit unions to heightened regulatory scrutiny.

In response, Berger said in his letter to Yellen that banks make the ultimate decision to sell or to merge with a credit union. “These transactions are a far cry from ‘hostile takeovers,’” he added.

He said that the merger process already is transparent, since the National Credit Union Administration and bank regulators must independently approve a merger or purchase before it becomes final. “The proposed additional legislative actions outlined in ICBA’s letter would only serve to dilute the economic benefits of the credit union tax exemption and harm consumers as a result,” he concluded.

So far during the 117th Congress, there has been no legislative effort to examine bank purchases more closely. And while there has been periodic rumbling about taking a closer look at the credit union tax exemption, no lawmaker has emerged to demand such an examination.

Spread the word. Share this post!