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Senate Finance Chairman Questions CU Tax Exemption
Thursday, February 1, 2018 6:50 AM

U.S. Senator Orrin Hatch (R-Utah), chairman of the Senate Committee on Finance, yesterday sent a letter to NCUA Chairman Mark McWatters questioning whether credit unions still deserve their tax-exempt status.

“I am concerned that the credit union industry is evolving in ways that take many credit unions further from their original tax-exempt status,” Hatch wrote, adding that the NCUA has relaxed field-of-membership constraints, opened the door to the use of alternative capital, and lifted limits on business lending.

Hatch, who is not subject to the usual political pressure that comes from raising divisive issues due to his retirement at the end of the year, wrote, “While these may be worthwhile pursuits, they should give us pause and cause a reflection on the core mission of credit unions and their tax-exempt status."

This new threat to the credit union tax status comes at a time when credit union trade groups had declared victory since the tax overhaul bill that was enacted last year preserved the tax-exempt status. However, Congress is likely to consider a technical corrections bill to the tax overhaul legislation, which could open the door to a renewed review of the credit union tax status.

In the letter, Hatch said that the federal credit union common bond requirements have been watered down through “regulatory interpretations and a dearth of enforcement in recent decades.”

He said that while state credit unions and nearly all other tax-exempt organizations pay Unrelated Business Income Tax on income derived from outside activities, federal credit unions do not.

He also said federal credit unions don't have to file an IRS Form 990 that would disclose executive compensation and that the NCUA did not implement a 2006 recommendation from the Government Accountability Office, which would have required that credit unions disclose their executives’ compensation.

Hatch posed a series of questions about NCUA oversight that he requested McWatters answer by April 6.

Credit union trade groups immediately defended the tax-exempt status.

“As the only depositor-owned, democratically controlled option in financial services, credit unions' mission is to promote thrift and provide access to credit for members, particularly those of modest means,” CUNA President/CEO Jim Nussle said. “That’s a mission they have fulfilled for more than 70 years, through multiple financial crises, and it’s a mission that remains unchanged today.”

“Credit unions were chartered by Congress to enable people of small means with a ‘common bond’ to pool their resources to meet their basic deposit, savings and borrowing needs,” said Camden Fine, president/CEO of the Independent Community Bankers of America. “While some credit unions operate that way today, the NCUA has enabled others to grow their membership and their markets well beyond their statutory mission.” 

Senator Hatch is the senior Senator for Utah, serves as the President pro tempore, and is the longest-serving Republican Senator in U.S. history having been elected to office in 1977. The Committee possesses the largest jurisdiction in either House of Congress, overseeing more than 50 percent of the federal budget.

Read the full article at CU Times.