Banker & Tradesman’s editorial about credit unions in the Dec. 31 edition misses the mark in many ways, with the exception of the title – if it were meant to mean that credit unions should pay taxes.

Instead, the newspaper advocates expanding their commercial lending limits from the current 12.25 percent to a limit of 27.5 percent, which would primarily help large bank-like credit unions at the expense of taxpaying community banks. Nationally, less than 40 of the nearly 7,400 credit unions are at or near the cap. Fewer than 10 Massachusetts credit unions are at or near even a 10 percent loan/asset level.

The proposed bill is ill-conceived and certainly ill-timed. Proponents claim that more small business loans would result, but the fact remains that the only reason that small business loan growth lags is due to the economy – not the availability of funds. Do we really want to reward larger bank-like credit unions that pay no state or federal income taxes at a time when tax revenues are sorely needed for essential services? Lost revenue from this tax subsidy comes right out of the pockets of ordinary tax-paying citizens.

Here’s another irony: Despite their legislatively mandated mission to make credit available to individuals of modest means and their taxpayer subsidy, only 29 percent of Massachusetts credit unions examined from January 2009 to May 2011 earned an outstanding/high satisfactory Community Reinvestment Act (CRA) rating, versus 42 percent of state-chartered banks examined in the commonwealth during the same time period.  

Moreover, it is an absolute red herring for B&T to state that the tax subsidy for credit unions is justified because “. . . as member-owned co-ops they don’t have the same means to raise money as banks do, such as issuing stock.” Perhaps the editors of B&T are unaware that 70 percent of the banks in the commonwealth are mutual institutions, not stock-owned banks. Like credit unions, mutual banks raise capital through earnings. However, mutuals have paid taxes on their earnings since the 1950s.

To truly level the playing field, B&T should support, as we do, encouraging large bank-like credit unions to change their charters to mutual bank form, and receive all bank powers along with their respective bank regulatory oversight while fulfilling their tax-paying responsibilities.

Sincerely,

Daniel J. Forte
President
Massachusetts Bankers Association