Posts tagged ‘credit union tax exemption’

Paying Board Members Is A Bad Idea

Against my advice (I’m devastated), Washington State is about to become the 11th state in the nation to authorize the compensation of board members. The legislation, which passed with unanimous support and according to the CU Times is expected to be signed by the Governor, would also authorize the compensation of supervisory committee members.

The good people of Washington State did much more harm than good with this legislation. Too many more credit union victories like this one and we will all be polishing our resumes or at least explaining to people that credit unions have gone the way of other not-for-profit financial institutions that lost their exemption when Congress decided that they were too much like commercial banks.

I understand the argument for the payment of board members. It is getting more difficult to find civic-minded professionals to sit on boards where they are responsible for overseeing increasingly complicated organizations at a time when increased regulations are putting both directors and institutions under greater scrutiny. We will get a larger pool of qualified applicants, so the argument goes, by giving boards the option of compensating community members for their time and effort. To me, this argument in tantamount to saying you support Democracy but just don’t think people are talented enough to decide who gets elected. The volunteer composition of all boards is the single most important component to ensuring that the interest of the membership is what guides credit union decision making. I don’t want someone on a board who is doing it for the money or, worse yet, is doing it because he or she needs the money. I want someone on the board because they believe in what the credit union stands for and want to help out their local colleagues, association members or community.

I would put the track record of credit unions and their volunteer boards in safeguarding the financial institutions they oversee up against those of for-profit institutions any day of the week. For example, where were the directors of community banks when the ground was being laid for the Savings and Loan crisis? Those directors of Enron sure did a bang-up job, didn’t they? And the compensation of directors at some of our largest banks responsible for causing the Great Recession has actually increased in recent years.

Just about anyone in our industry can repeat by heart that credit unions don’t pay corporate taxes because they are member owned, not-for-profit cooperatives that return profits back to their members in the form of better and cheaper financial products and services. This is all correct but ultimately credit unions don’t pay taxes because Congress decided a long time ago that it didn’t make any sense to make them both pay taxes and carry out the socially important mission or providing alternatives to commercial banks and helping people of modest means.

The more we willingly do away with fundamental distinctions between ourselves and our for-profit counterparts, the more we put our industry at risk.

April 19, 2013 at 7:43 am 1 comment

Congressman to CUNA: My Bad

So, it ends up that yesterday’s biggest story isn’t about a bill to effectively end the credit union industry by doing away with its tax exempt status.  Instead, the Wall Street Journal reported that the Federal Housing Administration is once again on the verge of needing a bailout from the American taxpayer.  If this is true, and looking through some previous blogs I would note that the Wall Street Journal has made similar assertions in the past, it would mean not only that taxpayer funding would have to prop up the agency for the first time in its 78 year history, but that housing policy would finally be on the legislative agenda.  Depending on your perspective, the FHA is either a villain of scandalous proportions or a shining light in America’s housing industry. Here is why.

The FHA insures mortgages of individuals who may not otherwise qualify for a conventional mortgage.  The homeowners put down as little as 3.5% at closing and they pay back the insurance premium as part of the mortgage payments.  When Fannie and Freddie effectively went bankrupt at the start of the mortgage crisis and were taken over by the United States Government the FHA essentially filled the void left by its sister entities.  Today, it is responsible for one third of all mortgages in the country and together with Fannie and Freddie these government created entities are responsible for 90% of the mortgages in this country.

Those inclined to think of its behavior as scandalous would ask what other entity would increase lending during a mortgage crisis?  While artificially propping up the housing market, it has just put the American taxpayer on the hook and put off the day of reckoning for the government to actually decide what type of housing support to have in this country and how to pay for it.

For those inclined to see it as a beacon of sanity, it is safe to say that as bad as the housing market has been for more than five years now it would have been much, much worse without the FHA.  In addition, according to the Wall Street Journal, a disproportionate number of FHA’s delinquencies are on mortgages dating to early in the crisis.  Presumably this means that the worst may be over if only we can get through this rough spot.  I’ll let you decide whether you think the FHA should be considered a friend or foe of the American consumer, not to mention the credit union member who wants to get a house.  But I do know that if the Treasury has to extend a lifeline to this institution it will be seized on as an example of government overreaching and hopefully start a discussion about what the future of housing policy should look like in this country.

Congressman to CUNA:  My Bad

I didn’t think anything could take my attention away from the Peyton Place drama unfolding in Tampa Bay involving the top echelon of our military and intelligence establishment, but I was jarred back into reality when I saw the news bulletin from CU Times announcing that Florida Republican Congressman Dennis Ross had put forward a bill that would end the credit union tax exemption for both state- and federally-chartered institutions.  In fairness to the Congressman, he actually put forward the recommendations of the Boles-Simpson Commission on deficit reduction, which, as I pointed out in a recent blog, included ending the tax exemption for credit unions.

We can all breathe easy.  According to CUNA, conversations with staff revealed that the proposal eliminated the tax exemption as a result of a drafting error and that if the bill ever did start moving it would be amended.  Even assuming that the Congressman mistakenly proposed effectively doing away with our industry, the incident demonstrates just how fluid the next several weeks of congressional action is going to be.  If there is going to be a deal on deficit reduction, it is going to be a lot of last-second horse trading and a lot of it will take place behind closed doors.

New York Senate Republicans move closer to majority coalition

Speaking of late night horse trading behind closed doors, the New York State Senate Republicans are now within one seat of putting together a majority in the Senate with absentee ballots in one crucial upstate seat still being counted.  Senator-elect Simcha Felder, a conservative Democrat from Brooklyn will caucus with the Republicans.  If the Republicans don’t obtain a majority, the balance of power will hinge on the four Senate Democrats who created an Independent Democratic Caucus.  Stay tuned, I’m sure there is more fun to come.


November 15, 2012 at 8:08 am 1 comment

On Bankers, Ostrich, and Patriot Fans

This weekend has shown why the credit union movement is alive and here to stay, not simply because of Bank Transfer Day, but because of the bankers’ reaction.  Although the exact numbers won’t be known for a while, we already know that hundreds of thousands of people quit banks and turned to credit unions.  Nevertheless, the banks seem to be indifferent or unable to comprehend what this says about the standing of their industry in the eyes of the American public.  For example, Keith Leggett in his Credit Union Watch blog suggests that Bank Transfer Day demonstrates why credit unions should lose their tax exemption because it demonstrates that credit unions compete directly against banks.  Not to be outdone, David Locke, a local banker in Wisconsin, complained in an article in today’s Wall Street Journal that he’s having a tough time competing against a credit union which apparently is drawing many of his customers.

The banking industry is perhaps the only one of which I am aware that responds to evidence of massive consumer dissatisfaction with its products and services not by looking in the mirror, but by complaining about the tax code.  The fact is, those people turning to credit unions were doing so because they know they can get better service at competitive prices than they get at traditional banks.  As community banks become larger and lose the connection to the communities in which they began, and as larger banks view middle class customers not as a potential revenue source but as a nettlesome oversight costs, it is not surprising that people are turning to the one institution that still makes its money by growing its membership base.

The reason why Americans like sports so much is because of its black and white accountability.  Try as they might to forget, a Patriot fan knows they are waking up this morning having watched their team lose yet again to the Giants, courtesy of a last second touchdown.  In contrast, the banking industry can choose to go to work this morning and explain away what has happened over the last few weeks.  I hope it continues to do so, it’s good for our movement.

November 7, 2011 at 7:03 am Leave a comment

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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