BIG AND SMALL, local and not, Oregon banks have had the state’s consumer-friendly credit unions in their crosshairs for years. And this year, on the eve of a new program meant to make it easier for Portland and other government bodies to move more of their money to credit unions, bankers are on the offensive.
The Oregon Bankers Association (OBA) is behind three bills in the Oregon House of Representatives targeting credit unions. The most extreme is an attempt to stick the not-for-profit institutions with the same corporate tax that for-profit banks currently have to pay. While the banks say they’re fighting for a fair tax code, credit unions are singing a different tune.
“It’s less about a public-policy question than it is about competition,” says Troy Stang, president of the Northwest Credit Union Association. “And banks would love to have no competition in the market.”
He says the issue of fairness is a no-go when comparing cooperatively owned credit unions, which return profits to their members, to investment-driven banks, which return profits to their stockholders and shareholders. He says the bank lobby’s real concern isn’t an even-handed tax code. It’s stopping a program his group pushed for.
On April 1, Oregon’s Public Funds Collateralization Program for Credit Unions will launch. Run by the state treasurer, the program comes out of a credit union-backed bill passed in 2010 that allows public officials—from government entities as varied as school districts and cities—to deposit money in credit unions well beyond the $250,000 currently insured by the National Credit Union Administration.
The Federal Deposit Insurance Corporation (FDIC) also insures bank deposits only up to $250,000. But banks looking to hold money beyond that limit have another option: They can join “collateralization programs” that create a large pool of money, guaranteeing the funds can be repaid.
Oregon banks currently have their own state-run collateralization program. However, says the OBA: Banks get taxed, and credit unions don’t. And that’s not right.
“If they are going to be receiving public funds, then they should be treated like banks,” OBA Government Affairs Director Kevin Christiansen told the Mercury. “Whether they are or not, they should be taxed like banks.”
That’s the idea behind HB 2486. It specifically targets credit unions holding public deposits beyond $250,000.
It also attacks credit unions that lend to businesses.
Christiansen wouldn’t speculate on what losses, if any, Oregon banks might endure because of fleeing public dollars. Still, the banks he represents have reason to worry.
All but six of the 37 banks in the state’s collateralization program are listed as OBA members. Qualified OBA members include national banks like Wells Fargo and Bank of America, and a lot of smaller Oregon community banks.
According to James Sinks, state treasury spokesman, 10 credit unions have signed up for the new program. Sinks says he expects more to join after these early adopters test the water. How much public money initially winds up deposited in credit unions won’t be known until the summer, but the balance could be substantial.
Sinks says 63 local governments already have credit union accounts, and a handful of them have already pledged to put more money there—including Beaverton, Corvallis, Independence, Klamath Falls, and, yes, Portland.
Currently, Portland has maxed out its credit union accounts at the $250,000 limit. But its three credit unions—Advantis, Unitus, and OnPoint—are joining the new program. The city has also stated its intention to participate in the collateralization program. Just how much dough Portland might move remains unclear.
The city keeps its largest deposits with Wells Fargo and Umpqua Bank.
Abby Coppock, a spokeswoman for the Portland Office of Management and Finance, told the Mercury in an email that the city is “just beginning to look into those details.”
She also stressed, “The city isn’t facing an either/or decision between banks and credit unions.”
Portland’s pledge to credit unions stems from the city’s Responsible Banking Policy Resolution. The resolution followed an Occupy Wall Street campaign to get people to move their money from national banks to community banks and credit unions. Portland City Council passed the resolution unanimously in May 2012.
The city also placed $250,000 deposits in seven smaller community banks as part of its resolution. Six of those seven banks, however, participate in the state collateralization program and could conceivably be given more. Five of these are OBA members.
It’s not entirely clear how the OBA’s bills will fare in a legislature controlled by Democrats. A similar bill aimed at heading off the new credit union program failed in the past.
All three bills have been referred to committees.
As for the new program’s future, Stang from the Northwest Credit Union Association suspects cities and other government bodies will want in.
“I think we will quickly see credit unions across Oregon hearing inquiries from their communities about participating.”
The reason credit unions are not taxed the same as banks is that since they are Not-For-Profits, taxing the credit union would lead to a double tax on the customers who are also the Member-Owners. Since credit unions are not profit driven the money they make goes towards being a successful business and any surplus is returned to the Member-Owners, often in the form of service benefits and lower fees as well as through dividends payed.
Customers of a bank are not affected as directly by the taxes placed upon the banks profit, which is not returned in order to work for the customers but rather paid out in dollar amounts to Share/Stockholders.
Gee, if only someone would give the not-for-profit medical care pimps, like Legacy, the same treatment.
Legacy is a non-profit. Very different than a co-op which is a not-for-profit. Co-ops are community owned businesses, they need to meet thier bottom line but the profit gets returned to the member-ownership who are often defined by thier relationship and use of the business.
Non-profits are benevolent organizations that rely heavily on grants & donations aside from the revenue they generate from thier services or product. Not to mention that the ownership is often not those who use or interact directly with the services or product of the organization. As a result of not being owners they also have no democracy, the users of the organization rarely elect the board or have representation on the board.