WASHINGTON-The American Bankers Association (ABA) sent a letter to each member of the Senate and House of Representatives slamming CUNA's Renaissance Commission report and subsequent letter to the Hill. According to the bankers, the Commission's report flies in the face of congressional intent and the ABA renewed its call for the taxation of credit unions. "The Renaissance Commission's recommendations clearly demonstrate the trend, already carried out through the regulatory process, of some credit unions increasingly ignoring the basis on which the credit union tax exemption is based," the ABA's letter read. The ABA claims that Congress provided tax relief to credit unions because of their common bond and serving people of modest means. "The latest memo the American Bankers Association has sent to Congress is just another verse of the same song they've been singing for years," CUNA President and CEO Dan Mica responded. "The bankers are once again attempting to determine the future of the credit union system by distorting our efforts to keep pace with marketplace developments and to enhance the ability of credit unions to serve all of their 80 million members." The bankers' letter countered that this is simply not the case. While the credit unions have stated that their tax exemption is based on their "cooperative, member owned, not-for-profit status," the ABA points out that mutual banks are actually subject to taxation. "However, generally under our tax code, institutions offering products or services described as `mutual,' `cooperative,' or `not-for-profit' are subject to federal tax, including mutual insurance companies and mutual savings banks. We would strongly encourage Congress to explore these alternate cooperative models of tax treatment," ABA Executive Vice President Donald Ogilvie wrote in the letter. The bankers sent a similar letter to Capitol Hill when NAFCU first alerted the Hill of their efforts to enhance the federal charter back in January. "These are their usual scare tactics," NAFCU Communications Manager John Zimmerman said. Mica pointed out that credit unions have sat by and allowed banks to expand their powers and modernize the laws that govern them without a fight and expressed disappointment in the ABA's response to the credit union efforts. "The irony is that credit unions have never made any attempt to dictate how banks can serve their customers or how they must handle their internal operations. In fact, CUNA did not fight passage of the Gramm-Leach-Bliley Act, pending legislation to ease restrictions on [Subchapter] S corporations, or an ABA-backed initiative that would let banks enter the real estate brokerage business." Mica said that credit unions' lack of opposition to these banking efforts was not because of laziness, but as "an olive branch." He added, "Our effort was and is an honest attempt to move forward in the interests of both our constituencies and the American consumer. I hope they rethink their view." The ABA's strong words in their letter make a truce seem highly unlikely. The ABA's letter said the Renaissance Commission recommendations called for a "sweeping new mission for credit unions that, ABA believes, clearly demonstrates that elements of the credit union industry want to move well beyond what Congress has intended to be credit unions' role, while still maintaining their tax exemption. "At its heart, the Commission report explicitly abandons the twin core provisions of the Federal Credit Union Act that require credit unions to both make credit `more available to people of small means' and base their membership on the concept of a `common bond' that ties a credit union's members together." The ABA advocated that this could lead to nationwide fields of membership for credit unions offering investment services to millionaires, which, the ABA stated, is not what Congress intended. According to the ABA's letter, this is already beginning. The trade organization quoted a CUNA study from last year, "Credit Union Members Today and Tomorrow," which found that credit union members have more money and are better educated than the general public. The ABA said this suggests that credit unions do not serve an economically diverse group. "Providing credit unions with unlimited membership opportunities and a new product authority most likely aimed at wealthier customers will only further empower such institutions to `cherry pick' the most affluent customers within a community," Ogilvie wrote. The ABA underscored that credit unions do not have Community Reinvestment obligations. CUNA Senior Vice President of Governmental Affairs John McKechnie nearly ridiculed the ABA's logic. "That certainly says something about the quality of their argument to give such a crazy example," he said. Still, the ABA's letter persisted, "ABA does not believe this is what Congress intended in granting credit unions favored tax status in 1937. In fact, the Renaissance Commission's recommendation to eliminate the common bond requirement stands in stark contrast to Congress' specific reassertion in the 1998 Credit Union Membership Access Act (CUMAA) that `[a] meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests or activities, or the maintenance of an otherwise well-understood sense of cohesion or identity, is essential to the fulfillment of the public mission of credit unions,' [Pub. L. No. 105-219 Sec. 2, 112 Stat. 913-914 (1998)] ABA quoted. According to McKechnie, reading the law to mean that credit union's common bond between its members as the only way to define a credit union is to "misunderstand" the CUMAA. "In the actual act.there are a number of characteristics Congress found about credit unions. I certainly think Renaissance…really reaffirms that," he explained. -

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