For years, banks have had it in for credit unions. And this year’s round of legislative fisticuffs is no exception.
The idea behind the bill backed by the Oregon Bankers Association (OBA) is to saddle large not-for-profit credit unions with the same kind of corporate taxes that for-profit banks currently have to pay. That’s because, say Oregon bankers, tax-exempt credit unions aren’t paying their fair share of taxes.
But this isn’t the whole story. HB 2486 also specifically targets a new state program that’s expected to be a boon for credit unions and could take money away from banks. And that's why Oregon banks are acting now.
On April 1, Oregon’s Public Funds Collateralization Program for Credit Unions is set to take effect. This program comes out of a bill passed in 2010
law that allows public officials to keep public funds in credit unions past the $250,000 currently allowed by the National Credit Union Administration (NCUA is to credit unions what the FDIC is to banks). This potential competition seems to have attracted the banking lobby's ire.
“If they are going to be receiving public funds, then they should be treated like banks,” OBA legislative director Kevin Christiansen told the Mercury. “They have been acting like banks and whether they are or not, they should be taxed like banks.”
Christiansen says instigating the new program without also taxing the credit union would give them an unfair advantage over small community banks (and though he didn't say it large national banks) and the state had no right “to pick winners and losers.”
Oregon banks currently have a program almost exactly like the new one for credit unions, and all but
four six of the 37 banks listed as being involved in the program are OBA members. These include big national banks like Wells Fargo and Bank of America as well as a lot of Oregon-based banks.
HB 2486 specifically goes after the $250,000-public-funds-and-then-some issue and asks that credit unions participating in program (and pretty much any other credit union holding a commercial loan equal to or greater than 10 percent of its assets) be taxed.
In order to target Oregon’s credit unions, according to its newsletter, Banking Matters, OBA has launched a “credit union taskforce.” This taskforce includes a “multi-pronged approach involving both legislative and communications strategies.”
Beyond its bills, OBA also is trying to win the hearts and minds of Oregon lawmakers by distributing a report they funded that states the credit union market is now dominated by some very large credit unions, which does appear to be the case.
The study also notes that Oregon’s 73 credit unions—big and small—hold about $15 billion in assets. But if that sounds impressive, consider the credit unions’ market share. It’s about 20 percent of Oregon’s consumer banking market, according to the Northwest Credit Union Association (NWCUA). And that respectable figure, compared to other states, might have the banks concerned.
“It's less about a public policy question than it is about competition,” Troy Stang, president of the NWCUA, told the Mercury, “and banks would love to have no competition in the market…I really think that these three bills are in the Oregon legislature because we have seen growth and consumers voting with their wallets and feet.”
The growth Stang is referencing was motivated in part by Occupy Wall Street’s “N17!” campaign, which was designed to get regular people to switch from big banks to small community banks and credit unions. And it seems to have worked. Credit union membership is up, says NWCUA spokeswoman Lynne Heider. The banks have noticed.
In the winter 2012 edition of Banking Matters, OBA member and President of Capital Pacific Bank Mark Stevenson complained that credit unions were unfairly taking advantage of Occupy Wall Street’s anti-bank rhetoric in order to solicit new customers. In his editorial—titled “Despite Our Differences, We Are Stronger Together,” a reference to how small community banks should take the high road and not talk shit about the big national banks—he writes:
In the short run, it may seem profitable, safe or advantageous to take the intellectual short cut and play to certain audiences. But in the long run, we risk hurting our own institutions, our industry, our communities and our country.
Stevenson goes on to ask his readers to not disparage the large commercial banks for crashing the economy and creating the Great Recession. Saying, “it takes two to tango,” he also blames consumers for taking on those bad home loans the banks dished out.
None of this is particularly new news. And neither is the OBA’s campaign on credit unions. Similar campaigns have been tried by the Massachusetts Bankers Association and the Texas Bankers Association to name a few. The American Bankers Association—the big national group the OBA is an affiliate of—has also gone after pro-credit union bills at the federal level. And in its March 2004 newsletter, the TBA notes that the American Bankers Association was encouraging all banks affiliated with it to form credit union taskforces. TBA newsletter(PDF) called on its members to go after the “Tax Free Taj Mahals” i.e. credit unions and their unfair tax-exempt status.
So the idea’s been kicked around. But NWCUA’s Stang says this concern about fairness is a ruse, because credit unions aren't banks.
"There's a bit of a misunderstanding about our structure,” Stang told the Mercury. “A credit union is a not-for-profit financial cooperative.... It’s a much different model from a bank model [that’s] typically owned by a small group of shareholders or stockholders if it's a community bank. If it's a nationally traded bank, then the mission is to return profits to the stockholders. In a cooperative [credit union], the profits are divvied up among the members.”
Stang says those returned profits—which are given back to members as better rates and fewer fees—account for about $170 a year, per household, and add up to $121 million for Oregon credit union members.
As for the anti-credit-union bills' likelihood of passing, that’s not entirely clear. But it seems unlikely the Democratic-controlled Oregon Legislature will look too kindly on the bills. All three bills have been referred to committees. We’ll keep our eyes on them.