Banking groups are blasting the NCUA for considering expanding options for credit unions to build capital beyond retained earnings, charging that such an expansion would violate federal law.
The American Bankers Association and the Independent Community Bankers Association of America leveled the charges, as they filed comments on the NCUA proposal. Tuesday was the deadline for submitting comments on the Advanced Notice of Proposed Rulemaking.
The NCUA board approved that notice at its January meeting in an effort to examine what types of capital credit unions could issue. The board posed several questions in the notice, which allows the board to gather comments before deciding whether to propose rules. Those questions included potential tax implications, particularly for state-chartered credit unions.
The banking groups were blunt in their assessment.
“The American Bankers Association believes that the NCUA lacks legal authority to allow complex credit unions that are not low-income designated to issue alternative capital to meet risk-based net worth requirements,” Brittany Kleinpaste the ABA’s director of economic and policy research said in her comment letter.
She said the issuance of alternative capital would remove any justification for the tax-exempt status of credit unions.
She added that the NCUA should be encouraging credit unions that want to expand their access to capital or expand operations to convert to federal mutual savings.
Meanwhile, the ICBA is urging its members to tell the NCUA to focus its energy elsewhere.
“The NCUA’s proposed rule on alternative capital would undermine credit unions’ mutual ownership structure, allow outside investors to leverage the tax subsidy, and fuel runaway growth of an industry that has already outgrown its original purpose,” the ICBA said in a statement. “The NCUA should focus on the intended mission of credit unions: serving people of modest means through a mutual ownership structure.”
The statement goes on to call on Congress to re-examine the tax-exempt status of credit unions. “Credit unions have become banks and must be taxed like banks,” the statement said.
The bankers made similar comments when the NCUA issued revised member business lending and field-of-membership rules. The ICBA sued the NCUA over the member business lending rules, but that lawsuit was dismissed. The ABA has sued the NCUA over the field-of-membership rules; that suit is pending in federal court.
NAFCU Executive Vice President of Government Affairs and General Counsel said alternative capital structured as a form of regulatory capital does not raise the tax exemption issue.
NAFCU has suggested that a framework for alternative capital should be established through a pilot program. In her comments on the proposal, Hunt said there is a need to ensure that any form of alternative capital is compatible with the mutual and cooperative nature of credit unions.
“Unreasonable restrictions on credit union access to capital markets limits flexibility, depresses share rates and exposes credit unions to greater risk in the event of an unexpected economic downturn,” she wrote.
