To quote The Great Communicator …

 

“There you go again!"Kurt Bauer and the Wisconsin Bankers Association are at it again – credit union bashing.  This seems to happen every time there’s bad news for banks. And, since the Better Business Bureau just came out with their “Top Consumer Complaints” list and banks came in third – behind cable TV and cell phone companies – their latest re-hash is no surprise. Here are some of the highlights to the WBA’s rambling, train wreck of a press release from April 9 entitled, “Credit Unions ill-equipped for more Commercial Lending.”

“The Government Accountability Office (GAO) … has documented that taxpaying banks do a far better job of reaching underserved consumers than credit unions”

Here the WBA is quoting a study done in 2006 in which the GAO admitted that credit unions are handcuffed in their ability to serve because of their field of membership restrictions.  Also, the GAO admitted that the study was flawed because of inadequacies in establishing the income levels of credit union members.

“…taxpaying banks do a better job of reaching underserved consumers than credit unions, despite the credit union tax subsidy…”

Credit unions don’t pay corporate income tax because they are not-for-profit financial cooperatives. Income goes back to the credit union’s member-owners in the form of lower rates on loans, higher dividends on investments and improved products and services. Credit Unions pay every other tax – property, real estate, etc. I think an appropriate question here might be to ask Kurt Bauer how many Subchapter S banks there are in Wisconsin – banks that pay no income tax. Subchapter S banks pass their income on to their shareholders instead of improving products and services. The shareholders then report the income on their personal tax returns. Maybe this is where those consumer complaint/satisfaction surveys come into play?  I’m just sayin’ is all …

“WBA opposes federal legislation to expand credit union commercial lending authority for many reasons, including that the CU industry is ill-equipped to handle increased commercial lending.”
No surprise here. Kurt Bauer and the WBA would oppose Christmas if credit unions had anything to do with it. I think those credit unions that do business lending in Wisconsin would be more than happy to compare their delinquency ratios with comparable banks. According to a recent Business Week online post, “…credit unions are originating a lot more business loans this year. Credit unions, which are not-for-profit, membership-based financial institutions, have not been exposed to the same losses that major banks have seen in mortgage investments and elsewhere. Anecdotally, I’ve heard that in recent weeks small business owners have been turning to credit unions for financing.” Additionally, I think those credit unions doing business loans in Wisconsin would be happy to share some tips on safe, prudent business lending.  Give ’em a call, Kurt.

“…out of more than 7600 credit unions nationwide, only 37 are at or near the Congressionally mandated cap.”  The WBA is referring to a goofy, arbitrary cap on business lending of 12.25% of assets that was put on credit unions by Congress back in the late ‘90’s.  There wasn’t a cap on credit union business lending before this and that goofy, arbitrary 12.25% cap was an number pulled out of a back pocket by the banker lobby. 

More important, though, is the fact that business lending requires qualified individuals who know what they are doing. (See the WBA’s earlier accusation that credit unions are not equipped to handle commercial lending.) Those credit unions that are doing business lending have gone out and hired business lenders. A lot of whom have worked at banks. But the credit unions that have done this are those credit unions that have been exempt from that goofy, arbitrary 12.25% cap. They’re exempt because that goofy, arbitrary 12.25% cap law provided an exemption for credit unions whose main lending was small business lending. There are a handful of these credit unions in Wisconsin. There would be more but it’s hard for a credit union to justify the expense of hiring a business lender, developing the policy and procedures necessary to do business lending well, and purchasing specialized systems and forms if they are going to bump against that goofy, arbitrary 12.25% cap at some point.  It just doesn’t make good business sense. If Congress were to at least raise that goofy, arbitrary 12.25% cap (I personally think there ought not be any cap) to 25%, credit unions could inject over $10 billion into the economy in the form of small business loans.  This at a time when banks are saying “NO” to small business loan requests. As Slate’s BizBox recently reported: “Regulators in the U.S. have been pressuring banks for months not to use the current economic climate as an excuse to withhold loans from credit-worthy small businesses. And yet study after study continue to show that small businesses with solid growth prospects are having trouble getting loans”

Kurt Bauer closes out by stating that if credit unions truly want to speed up an economic recovery, “…they can start by paying their fair share of the tax burden,” inferring credit unions have some kind of advantage. (Remember those Subchapter S banks?) This begs the question, if credit unions have got it so good, how come more banks haven’t converted to a credit union?

By the way, in the interest of full disclosure, you should know a few things:

  1. There are many good community banks in Wisconsin. Unfortunately, they pay dues to a trade association – the WBA – that has to justify those dues somehow, someway.
  2. I work for a credit union.
  3. Kurt Bauer is a putz.
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