The WBA (Wisconsin Bankers Association) says credit unions shouldn’t be able to lend to business because “they don’t pay taxes.” Of course, the WBA knows credit unions pay every tax a bank does except for corporate income tax. Credit unions don’t pay corporate income tax because they’re a financial cooperative. The profits go to the member/owners of the credit union in the form of generally lower rates on loans and higher rates on savings. The member-owners pay taxes on their “ownership share” in the financial cooperative.
A little history: credit unions fought for survival in 1998 when banks nationally sued to make it harder for consumers to join a credit union. It got bad enough where hundreds of thousands of credit union member/owners wrote their legislators and marched on Washington D.C. to fight for credit unions. Credit unions won the battle but lost the war.
At the 11th hour of legislative negotiation, when it became clear banks were going to lose, they pulled a rabbit out of their hat – in essence saying, “OK, if people can join a credit union then credit unions can’t lend to businesses.” Even though credit unions had been successfully lending to small businesses for decades, many from their inception, bankers were successful in having an arbitrary “cap” on credit union business lending put in place. The Membership Access Act signed by President Clinton assured consumers would have the choice of joining a credit union. But credit unions for the first time in their existence were hand-cuffed and prevented from loaning to small business.
Today, a bill is set to be voted on in the US Senate. It raises the lending cap for credit unions from that 12.25% of assets to 27% of assets and credit unions are lobbying their legislative representatives to pass it. Nationally, credit unions have $10B ready to lend to small business and help jump start the economy. In Wisconsin, credit unions have about $400M ready to lend to small business. The Wisconsin Bankers Association is opposed to Wisconsin credit unions doing business loans. In a press release from the WBA late last year, Rose Oswald Poels, WBA president/CEO, stated the business lending cap need not be raised because most credit unions aren’t even close to the existing cap. She doesn’t explain that business lending requires an expertise and that most credit unions don’t do business loans because they don’t have that expertise on staff. Ms. Poels also doesn’t tell you many credit unions would love to go out and hire the expertise to do business loans. Business lenders know their stuff and get a good salary. But what credit union is going to spend the money to hire business lending professionals knowing they’ll have to eventually put on the brakes when they bump against the cap? No well-run credit union is going to do that and Ms. Poels knows it.
Flash back to 1998. When the cap was put in place, so too was the ability for a credit union to file for an “exemption” if they could prove most of their lending was business lending. Nine Wisconsin credit unions did. Ms. Poels says “…why then don’t these credit unions just ask for an exemption from the cap like the other nine credit unions.” All nine credit unions got their exemption right after it was offered in 1998 and their applications weren’t challenged by the banks because, it was so soon after the passage of the law it would have made them look like obstructionist hypocrites. As time passed and credit unions would creep up on the lending cap they would indeed apply for that exemption. And guess what – banks would raise holy hell and threaten to sue the credit union regulators charged with granting or denying the business lending exemption. The credit union regulators, many suffering from a severe lack of a spine, would wither under the bank attack and deny the exemption. Thus, no exemptions to the business lending cap have been granted in recent memory. That’s another reason for the credit union business lending bill before the Senate.
Finally, Ms. Poels says we can talk about more credit union lending to small business if the member/owners of credit unions are willing to give up their federal corporate tax exemption – an exemption granted by the Federal Credit Union Act. Ms. Peols is a bit of a hypocrite because, the fact is, there are 80 banks in Wisconsin that don’t pay ANY federal corporate tax – they’re called Subchapter S banks. That’s a $54 BILLLION tax subsidy. Credit unions don’t pay corporate income tax because we’re a cooperative. Wisconsin’s Subchapter S banks don’t pay any taxes because of a loophole.
Take a moment if you can and send Senators Johnson and Kohl a short message expressing your support of credit unions and their 1.2 million member owners in Wisconsin. And, your support for small business. Click here and follow the directions. It’ll only take a few minutes.