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CUNA sets record straight on CU tax treatment

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WASHINGTON and MADISON, Wis. (3/8/10)--Credit Union National Association (CUNA) economists have analyzed a study in Georgia about the impact of credit unions' tax exemption and determined the study is not a complete look at the exemption. The study report--written by Thomas G. Noland of the University of South Alabama and Edward H. Sibbald, a BB&T executive in residence at Georgia Southern University--was published in Southern Business Review (Winter 2010) and compares credit unions in Georgia with similar-asset Georgia banks. They state the "original justification for the tax exempt status of credit unions was the idea that credit unions served lower income borrowers and depositors." "This is not, however, a complete list for the justifications for tax exemption," CUNA Senior Economist Steve Rick wrote in an analysis for CUNA. "They left out that credit unions are not-for-profit, democratic, financial cooperatives, owned by their members. And, credit unions' boards of directors are mostly unpaid volunteers, elected by members." The paper also omitted "that credit unions, with limitations on who they can serve and restrictions on products and services, also have a social mission to provide service to people of modest means as part of their member base," Rick wrote. The Internal Revenue Code acknowledges that credit unions are recognized as tax-exempt "because they issue no capital stock. Under the IRS comments for 501(c)(14) Credit Unions and other Mutual Financial Organizations, the IRS provides a very clear link between tax exemption and the lack of capital stock," said Rick. The Georgia report said the "business model of a credit union is fundamentally different than a commercial bank," but Rick noted the comparison is "apples to oranges," with no attempt to control for the different asset and liability mix between credit unions and banks. The credit union operating platform is designed and staffed to handle large volumes of smaller accounts and smaller loans, Noland and Sibbald said. Banks have eschewed this business area due to the excessive costs--and lower profitability--involved. They note that consumer loans have declined and account for only about 7% of a bank's loan. Credit unions have stepped into the lending void to provide credit to many low-income borrowers who cannot get credit at a bank. Rick cited 2008 HMDA data showing credit union loan approval rates are about 10% higher than non-credit union lenders (69.7% overall to 59.1%, respectively). For low income populations, credit unions' mortgage approval rates were 57% compared with banks' 47.3% , he said. In a "Tax Exemption Benefits" section, Noland and Sibbald list four possible ways the tax exemption benefit would accrue to credit union members: higher deposit rates, lower loan rates, broader extension of consumer credit, and higher retained earnings to boost capital. "The authors excluded from their list, the higher operating costs needed to service many small balance checking accounts and savings deposits, and the lower fees charged by credit unions as compared to banks," said Rick's analysis. The authors write that a previous study used aggregate data does not support the first two benefits, but Rick notes "a quick analysis of bank vs. credit union interest rates, either in your local newspaper or from a reputable interest-rate data source like Datatrac, completely disproves this assertion." Georgia credit unions on average charge 1.94 percentage points less on a used-car loan than did banks during third quarter 2009, according to Datatrac. "This resulted in a $41 million savings for Georgia borrowers," said Rick. "On the deposit side, Georgia credit unions paid 0.42 percentage points more than Georgia banks on money market accounts," a $7 million benefit for Georgia's savers. The authors' conclusion that Georgia banks grew faster than credit unions in the five-year study "is one piece of evidence for the argument that credit unions' tax exempt status has not put banks at a competitive disadvantage," Rick said. The report also concluded that "Banks are generally more profitable than credit unions, but due to the credit unions' tax exempt status, banks wind up earning less income as a percent of assets." "That is exactly what is to be expected from the credit union tax exemption: credit union serving high-cost low-profitability customers, which leads to relatively low earnings," said Rick, "but being able to accumulate capital at a faster pace than banks because credit unions cannot rely on shareholders for additional capital, cannot issue preferred stock and cannot count on capital contributions for a parent holding company." The Georgia report raises a fundamental policy question: "How the federal government can justify backing the National Credit Union Administration's guarantee on deposits with the full faith and credit of taxpayers when these institutions do not pay federal taxes." "The answer is simple," said Rick. "The benefit credit unions offer millions of Americans in the form of lower and fewer fees, lower loan interest rates and higher deposit interest rates is greater than the foregone federal tax revenue. "Also, let's not forget that the cost of the federal government's bailout of the Federal Savings and Loan Insurance Corp. (FSLIC) two decades ago far exceeded the federal taxes paid by the savings and loan industry during its entire history," Rick concluded.

CUNA Mutual contribution to Haiti relief hits 45K

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MADISON, Wis. (3/8/10)--Due to a tremendous response from employees, CUNA Mutual Group's contribution to the Haiti credit union disaster relief efforts has reached $45,000, said CUNA Mutual Thursday. More than 225 CUNA Mutual employees donated a total $15,000. CUNA Mutual's corporate contribution and matching funds increased that amount to $45,000. The contribution will assist the Caribbean country's recovery from the January earthquake. It will be administered through the U.S. credit union community's CUAid for Disaster Relief in Haiti. was activated by the National Credit Union Foundation (NCUF), in conjunction with the World Council of Credit Unions' Worldwide Foundation for Credit Unions, after the earthquake struck.. Donations raised through CUAid for Disaster Relief in Haiti will be disbursed by the Worldwide Foundation. Jill Stevenson, marketing and communications coordinator for NCUF, told News Now Friday that total donations raised via CUAid system is $418,416.62. That is in addition to funds raised through the Worldwide Foundation. The overall total from the Worldwide Foundation is just over $800,000, said Valerie Breunig, foundation executive director. Others reporting philanthropic efforts related to Haiti include Andrews FCU, Suitland, Md., which collected more than $7,100 in donations from employees and members for the effort. "The need for assistance is ongoing, and we are proud to support the Worldwide Foundation for Credit Unions and these other organizations in their efforts," said Chris McDonald, Andrews FCU president/CEO. Some credit unions have also given to the American Red Cross. On Feb. 26, Altura CU, based in Riverside, Calif., presented a $42,000 check to that organization for Haiti earthquake relief after CEO Mark Hawkins issued a call for each member to contribute $1. It used online banking to make giving easier. "By pooling our donations, we were able to make a significant contribution," he said. Students, teachers and staff at Riverside Unified School District schools also contributed more than $21,000 to the fund. "It was really wonderful to see our members embrace this concept and contribute what they were able to, to help others," said Hawkins. To support Haiti's credit unions and members through the international credit union disaster fund, make payments, via check, credit card or wire to:

Worldwide Foundation for Credit Unions Inc.

5710 Mineral Point Road

Madison, WI 53705, USA

Donations also can be made online with a credit card at For wire transfer information, contact Valerie Breunig, Worldwide Foundation for Credit Unions at 608-395-2055 or via e-mail Please indicate the donation is designated for the Haiti Disaster Relief Fund. U.S. credit unions can support WOCCU's relief efforts by donating through For more information, use the links.

CU System briefs (03/05/2010)

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* COLORADO SPRINGS, Colo. (3/8/10)--Pueblo City (Colo.) Employees FCU officially merged with Aventa CU, Colorado Springs, March 1. Both credit unions serve employees of utility and water departments, firefighters, police officers and other city administration staff (Colorado Springs Business Journal March 4). The resulting credit union, which will retain Pueblo’s name, will have $150 million in assets and 18,000 members (News Now Oct. 27) ... * ATLANTA (3/8/10)--Delta Community CU raised more than $323,000 to help Children’s Miracle Network, Healthcare of Atlanta, American Cancer Society Relay for Life and five area high schools. The figure is part of the $344,000 total the credit union donated to community initiatives in 2009. The credit union raised the money through local and out-of-state branch fundraisers (The Citizen March 4). Delta Community CU, Atlanta, has $3.5 billion in assets ... * HARRISBURG, Pa. (3/8/10)--A credit union branch manager from Valley 1st Community FCU, Monessen, Pa., helped an ill man who collapsed at a Walmart where the branch is located, according to the Pennsylvania Credit Union Association (Life is a Highway March 5). PattyLynn Mavrakis saw a man leaning against a wall inside of the store. She approached him and asked him if he needed help. She asked her staff to bring him a chair, and the man collapsed in her arms. She tried to keep him comfortable until paramedics arrived. Mavrakis said working for a credit union has made her more sensitive to helping people, and that her staff calls her "Nurse Ratched" from “One Flew Over the Cuckoo’s Nest.” She is always ready to help someone, Mavrakis said ... * FARMERS BRANCH, Texas (3/8/10)--Former Texas Credit Union League employee Marilyn Haisten Dumont died Feb. 25. She worked as editor of the Texas Leaguer from March 1978 to December 1982 (LoneStar Leaguer March 5). Dumont also has worked at America’s CU, Garland, Texas, for the past 10 years as vice president and general counsel. She is survived by her husband, daughter and two granddaughters ...

SW Corporate Frustration with banks fuels deposit surge

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FARMERS BRANCH, Texas (3/8/10)--The first quarter usually means an increase in liquidity at credit unions--but last year, the liquidity surge of the first quarter never abated, according to the Texas Credit Union League. A number of reasons have been suggested to explain the rise in liquidity--but one that has not been mentioned is anger with banks, the league said. “There is a lot of anecdotal information that points to consumer frustration--and even anger--about banks,” said Dan Abdill, senior investment officer at Southwest Corporate Investment Services (LoneStar Leaguer March 5). “Consumers are mad at banks and are putting their money into credit unions,” he said. In 2009, $72 billion “poured into credit unions,” according to the league, citing data from the National Credit Union Administration. Of that amount, $14 billion came in the fourth quarter. Stock market uncertainty coupled with the low--or non-existent--rates of return offered to depositors may also play a part in the liquidity surge. “But I tend to think people are voting with their pocketbooks, and they are voting for credit unions,” Abdill said. The article cited three studies indicating consumers’ dissatisfaction with banks and satisfaction with credit unions: the University of Michigan’s American Customer Satisfaction Index, and a study conducted by J.D. Powers and Associates in 2009, and the American Customer Service Index (ACSI). Last year, Southwest Corporate helped credit unions place more than $3.6 billion in term certificates, bank CDs or bonds through its brokerage services department. It also helped more than 700 credit unions complete more than 6,500 investment transactions. “2009 was a very busy year; 2010 looks to be even more so,” Abdill said. Abdill added: “One of the trends we see as credit unions are looking to maximize the return on their investment portfolio is more of them placing funds in bonds. Throughout 2009, and now into this year, we have seen a consistent increase in credit unions investing in agency bullet and callable securities, as well as agency mortgage-backed securities.”

HEW FCU partners with CU in U.K.

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Click to view larger image HEW FCU, Alexandria, Va., and Partners CU Ltd. of the United Kingdom have entered into a partnership. Pictured are from left, Patricia Ellis, chairman, HEW FCU; Kathleen Geary, president/CEO, HEW FCU; and Tracey Schuler, CEO, Partners CU Ltd. (Photo provided by HEW FCU)
ALEXANDRIA, Va. (3/8/10)--HEW FCU of Alexandria, Va., and Partners CU Ltd of Liverpool, Merseyside, U.K., have entered into an international partnership. The two worked collaboratively for two years to develop a strategy to solidify relations between the two organizations. The credit unions seek to enhance their knowledge base of the international credit union movement while “increasing brotherhood among credit unions throughout the world,” HEW said in a release. HEW FCU serves the areas of Washington, D.C. and Maryland and Virginia. Partners serves Merseyside, including the city of Liverpool in the U.K.

Canada proposes to expand CUs as federal entities

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TORONTO (3/8/10)--Canada’s credit unions may be able to expand countrywide if budget proposals released Thursday by the Canadian government to allow credit unions to incorporate as federal entities are approved. Credit unions in Canada currently are provincially regulated. The proposal would put credit unions on a level playing field with big banks, which currently dominate Canada’s financial industry, said Bloomberg (March 5). Credit union market share varies in each province, but credit unions have a strong presence in British Columbia--where credit unions hold up to 25% of residential mortgages. If credit unions are approved to become federal entities, they would face the same rules as banks--which would give them the ability to offer new products. However, like banks, they would not be allowed to sell insurance in their branches, Bloomberg said. The Canadian Bankers Association said in a statement that the industry welcomes new competition into the marketplace, but at the same time, the association said it is essential that “any new type of national financial institution operate on a level playing field with other players in the marketplace.”