Of Banks and the AFCU (Feedback)

TO THE EDITOR:

The misinformation employed by the Arkansas Bankers Association to exclude Arkansas Federal Credit Union from the bidding process for the Little Rock Technology Park community development project is reprehensible. The ABA put politics above the potential jobs and economic growth of the community, which speaks volumes about its self-serving agenda.

Based on ABA President Bill Holmes sweepingly inaccurate characterizations about credit unions, one can only assume that Mr. Holmes is ignorant of how credit unions work. So, let me set the record straight.

Credit unions pay plenty of taxes. While credit unions are exempt from federal taxes, credit unions pay many other taxes, including payroll, property, real estate and many state and local taxes. Credit unions’ more than 101 million member-owners also pay personal income taxes on the dividends they get from their credit unions.

Since the passage of the 1934 Federal Credit Union Act, the things that distinguish credit unions from for-profit financial institutions have not changed. Credit unions are not-for-profit cooperatives, serve defined fields of membership and cannot issue capital stock.

The ABA’s approach to exclude Arkansas Federal Credit Union based on credit unions’ tax-exempt status is short-sighted. The ABA’s categorization of the credit union’s tax exemption sullies the credit union’s member focus and its prudent business model. Yet the ABA curiously fails to recognize banks that have racked up over $100 billion in fines because of their truly questionable practices since the financial crisis.

Additionally, the ABA fails to note how critical credit unions have been in providing much-needed capital while the banks pulled back. This was true during the recent financial crisis and continues to be true today. A 2011 study commissioned by the SBA’s Office of Advocacy found that banks’ business lending was largely unaffected by changes in credit unions’ business lending, and credit unions’ business lending can actually help offset declines in bank business lending during a recession (James A. Wilcox, “The Increasing Importance of Credit Unions in Small Business Lending,” Small Business Research Summary, SBA Office of Advocacy, No. 387, September 2011). The study shows that during the 2007-2010 financial crisis, while banks’ small-business lending decreased, credit union business lending increased in terms of the percentage of their assets both before and during the crisis. And credit unions continue to lend to small business today.

Ultimately, if the ABA truly believes credit unions’ tax-exempt status is so advantageous, the association is welcome to convince its members to convert to a credit union. In the meantime, the members should put the best interests of their community ahead of their own.

Going forward, I hope the Little Rock Technology Park Board of Directors will have a change of heart and give Arkansas Federal Credit Union the chance to participate in the bidding process.

B. Dan Berger
President and CEO
National Association of Federal Credit Unions