ICBA Urges Policymakers to Review Credit Union Tax Exemption

The Independent Community Bankers of America (ICBA) has called on policymakers to clamp down on tax-exempt credit unions acquiring tax-paying community banks.

The association raised concerns about the risks of these acquisitions following news that the $1.1 billion REV Federal Credit Union had finalized an agreement to acquire the West Virginia-based First Neighborhood Bank.

This marked the 15^th instance this year of a tax-exempt credit union acquiring a tax-paying bank, a trend that is continuing to grow, with these types of acquisitions representing approximately a quarter of all banking industry acquisitions this year.

According to the ICBA, these acquisitions are extending the federal tax exemption for more than $2 trillion in credit union assets, while also displacing trusted providers of credit in local communities.

The association said too many credit unions are violating the limits established by Congress to justify their federal tax exemption, therefore it has urged policymakers to hold hearings to review the credit union industry’s tax and regulatory advantages.

It also recommended that Congress consider an exit fee on credit union acquisitions of tax-paying banks to capture lost tax revenue resulting from these deals.

It added that lawmakers have both their constituents’ support and historical precedent on their side, as Congress revoked the tax exemption for build and loan associations, cooperative banks and mutual savings banks in 1951 because it determined these institutions operated much like commercial banks and should be taxed accordingly.

The ICBA said:  “With community banks leading the way in serving small businesses and agricultural lenders, Congress should similarly investigate the nation’s outdated credit union policies and whether the government should continue subsidizing community banking consolidation.”