In the 32 years Daniel F. Egan Jr. has worked for New England credit unions, he can’t recall a year when banks haven’t tried to take away credit unions’ tax exemption.
In fact, he says, “I think it’s been happening forever – since the beginning of credit unions.”
Egan, 63, is retiring at the end of this year as president and CEO of the Massachusetts Credit Union League, the New Hampshire Credit Union League and the Credit Union Association of Rhode Island. He will also retire as head of New England Credit Union Services, a jointly owned firm that manages and provides services to the three state groups.
An attorney who worked both in private practice and as an assistant district attorney, Egan was hired as legal counsel for the Massachusetts Credit Union League in 1981. Three years later, he was elected president. After agreements were signed with New Hampshire in 1985 and Rhode Island in 1992, he took the helm of all three organizations.
Before he steps down, he’ll go one more round, defending what banks claim is the unfair tax advantage given to credit unions.
Credit unions have been exempt from paying corporate income tax since 1916, when the federal income tax was first instituted.
And the banks have been squawking ever since.
The latest salvos were fired earlier this year, when the American Bankers Association mounted billboards in Washington, D.C., stating: “Today credit unions are a $1 trillion industry that pays no income tax. That’s nearly $2 billion every year that could help shrink the federal deficit. Now, credit unions want even more perks. It’s time to end credit unions’ indefensive and outdated special treatment. Enough is enough.”
Egan gives the same answer whenever he’s asked about CUs’ tax-exempt status: “We were set up as a not-for-profit. It’s a cooperative. And I’ve always said to any bank, including mutual community banks, we’d be more than glad to see you convert, as long as you deal with the restrictions the CUs have.”
Those restrictions limit CUs’ flexibility to expand markets and customer bases, increase lending authority and gain access to additional capital. Some large credit unions chafe at those restrictions. Brockton-based HarborOne, for example, sought approval to convert to a mutual bank charter, citing those very reasons.
Lending Limit Brouhaha
Perhaps not so coincidentally, the bankers’ latest effort to strip credit unions of their tax exemption coincides with a renewed effort by CUs to ease one of those restrictions, by increasing the lid on their commercial lending limits.
Business lending by credit unions is currently limited to 12.25 percent of their total assets. A measure to raise the limit to 27.5 percent has repeatedly failed in Congress.
But Sen. Mark Udall, D-Colo., reintroduced the bill in May, and Egan is hopeful the measure will finally gain approval.
The Independent Community Bankers Association argues that the legislation would allow “tax-subsidized” credit unions to “expand into prohibited member business lending.”
Egan has an answer for that argument, too.
“Increasing the cap provides small businesses with additional capital, at no cost to the taxpayer,” Egan says. “The cap that was put in place arbitrarily in the late 1990s has no real relevance to credit unions’ safety and soundness.”
Credit unions are fighting the banks’ billboard blitzes with a nationwide initiative of their own. As of early June, more than 1,500 credit unions were actively participating in the Credit Union National Association’s “Don’t Tax My Credit Union” campaign. More than 65,000 messages arguing for retention of the tax exemption have been sent to Congress.
First State CU Charter
The credit union movement began in New England when the first credit union, St. Mary’s Bank, opened in Manchester, N.H. in 1908 to serve Franco-American mill workers. A year later, Massachusetts became the first state to have a credit union charter.
Credit unions in Massachusetts and throughout the country have served a vital role since then, providing banking services to minority and low-income populations and establishing a not-for-profit, cooperatively owned banking system. During the 2007-2008 subprime mortgage collapse, while the nation’s major banks self-imploded, credit unions continued their lending and maintained the flow of money to consumers and small businesses.
The parallel banking system that credit unions offer is as valuable now as it was 105 years ago. And that’s something Egan thinks is worth fighting for.
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