Leaders of the Iowa Bankers Association articulated the group’s top priority: gaining tax parity with credit unions. David Nelson, CEO of West Bank, West Des Moines, and Kurt Herbrechtsmeyer, president and CEO of First Security Bank & Trust, Charles City, focused on credit union taxation during their respective speeches at the 131st annual IBA convention. The meeting, which attracted nearly 600 bankers, vendors and guests, took place Sept. 17-19 at the Veteran’s Memorial Auditorium in Des Moines.
“Our first priority is going to be tax reform,” stated Herbrechtsmeyer as he began his year as IBA chairman. “The threats we face with regulatory inequities with credit unions really have to be addressed. We have a unique but narrow window of opportunity right now to move the ball forward with this issue as part of the overall discussion on tax reform, both on the state and federal levels.
“Credit unions are helping to build our case for tax equity with their arrogant and blatant misuse of their tax-preferred status,” Herbrechtsmeyer said.
Nelson, reflecting on the past year when he was IBA chairman, also focused on credit unions. He explained the University of Iowa Credit Union, with 165,000 members and $4.5 billion in assets, is the largest credit union in the state, offering membership to any resident of Iowa and four Illinois counties. The credit union has no official affiliation with the University of Iowa.
“Iowans are duped into thinking that doing business with the credit union is supporting the Hawkeyes. Nothing, however, could be further from the truth,” Nelson said. “In reality, Iowans’ reward for paying the credit union’s taxes for them is to endure the credit union’s deceptive marketing practices and this cannot continue.”
“At a time when the tuition at the University of Iowa is skyrocketing, and putting a higher education out of reach for many Iowans, the University of Iowa Credit Union continues to line its own pockets,” proclaimed Herbrechtsmeyer. “Its net income reached $56 million in 2016 and it is projected to make more than $60 million in 2017, while not paying anything in taxes to support the university whose name it bears…
“Credit unions that abuse their mission must be held accountable and now is the time for us to shed some light on this for the public to see,” Herbrechtsmeyer said. During the summer, Herbrechtsmeyer said bankers met with state and federal lawmakers and policymakers, explaining the impact of the credit union income tax exemption. Herbrechtsmeyer said the banking industry is “gaining momentum” on the issue.
Citing a General Accountability Office study that said banks do a better job serving low-income people than credit unions, Herbrechtsmeyer noted the Community Reinvestment Act does not apply to credit unions as it does to banks. “It’s time for credit unions to start paying their fair share, and at least if they’re not going to pay their taxes, we should get credit for doing their jobs,” he said.
“My number one personal priority has been, and will continue to be, informing Iowans of the tax equity issue,” Nelson said. “It is important to remember that this is not simply a banking industry issue; it is much more than that. This is a taxpayer issue, affecting all Iowans and all Americans. Quite simply, you and your neighbor should not be forced to pay the credit unions’ taxes for them. … When people ask me to clarify what I mean when I say this, I explain that when there is a bill that needs to be paid, and some are not required to participate, the rest of us just have to pay more. And then I ask the question, how would your lives be different if you could force your friends and family to pay your income taxes for you?
“Elected officials see this as simply a banking issue; they want us to come to a compromise. And since we are doing fine, they think there is nothing to worry about,” Nelson continued. “However, since it is a taxpayer issue, we need to claim it as such. We need to build the alliances with other associations, taxpayers, friends and neighbors to educate and expose this for what it is, and I think we are making significant progress with that.
“We are not trying to eliminate the giant credit unions,” Nelson said. “We are actually trying to help them by providing them with a pathway to citizenship.
“If there is a more unnecessary and wasteful subsidy than making you and your neighbor pay the credit union industry’s taxes for them, I am unaware of what that could be.”
Nelson said regulatory reduction was his No. 2 priority, and that many Iowa bankers talked to their elected officials about the need to reduce the regulatory burden on banks. “Can we get a bipartisan reform of Dodd-Frank through Congress? I assure you if regulatory relief benefitting our customers does not happen, it will not be because the Iowa delegation” didn’t do enough.
Herbrechtsmeyer said excessive regulation is distorting the marketplace. “Access to financial services should not be hindered by regulatory regime,” he said, noting many smaller banks are selling to larger banks because they can’t afford to spend more money on compliance. “The scale required to manage regulatory costs is too large and bank consolidation results. Iowa loses on average 10 charters to mergers and acquisitions, due in large part to compliance costs and risks involved in giving financial services to our communities. It is time to tailor regulation appropriately to the level of risk.”
Herbrechtsmeyer urged bankers to work together on industry issues. “We must come together as one team,” he said. “We cannot let our detractors divide us. We are stronger as one, and when we speak with one voice for our industry.”