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Incoming ABA chair on credit union taxation: 'It's time to fix it'

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The American Bankers Association's newest chair is setting her sights on credit unions – and she's a former credit union CEO herself.

Laurie Stewart, president and CEO of the $686 million-asset Sound Financial in Seattle, will soon start her one-year term as chair of the ABA, which holds its annual conference this week. What makes Stewart unique is that she led her institution's conversion from a credit union to a bank in 2003. Flash forward to 2019 and one of the year's biggest trends is the slew of credit unions purchasing banks. Just last week the Independent Community Bankers of America announced an initiative to encourage members to push for a level playing field with credit unions.

The conversation below, an abbreviated version of what originally ran in American Banker, Credit Union Journal's sister publication, highlights frustrations with credit unions being allowed to buy banks and how the lobbying group aims to address the issue in the year ahead.

The following is an edited transcript of the conversation with Stewart.

What's on the top of your to-do list as ABA chairman?

LAURIE STEWART: It's hard to name just one thing. I'm honored and humbled to have this wonderful opportunity. I'm focused on several issues that are important to me and bankers around the country. Certainly, diversity and inclusion is a huge issue. And it ties into our ability to develop and empower emerging leaders in our industry.

I'm also pretty fired up about this situation with credit unions buying taxpaying community banks and taking them off the tax rolls of communities around our country. This is an area we have to talk more about. If you're going to be a bank, perhaps you should do what we did, which is convert to being a bank.

How are credit union-bank deals connected to the tax-exemption issue?

It's an even more egregious situation. How do we stretch and think that a credit union can buy a bank's book of business and believe that there's a common bond there? When I think about the Federal Credit Union Act and how it talks about people of modest means, or when I think about the credit union that we were, serving the grocery industry. That's the essence of a credit union. Now we see credit unions offer all the same services as banks but not be beholden to [the Community Reinvestment Act], have less of a compliance burden and then take taxpaying banks off the tax rolls.

Is it realistic that the credit union tax exemption will ever be repealed?

Hope is not a strategy, so I don't think we can just hope for it to be repealed. I do believe that as more and more consumers become aware of these trends it will help. There's definitely an educational component that needs to happen. Nothing about this is going to be easy. But I think crossing the line into broader awareness and seeing banks bought by these institutions might be a tipping point. This just can't be good public policy.

I've actually talked to a few credit union CEOs that think fundamentally there's going to be taxation and they would be better served if they could get their industry to structure a tax and be more in control rather than have to be on the defensive all the time. They've just grown to be something totally different than what was imagined in the 1930s, and it's time to fix it.

Where are banks feeling the most competition from credit unions?

The pressure I get from credit unions is on commercial real estate. They're making those loans in our market at incredibly low rates with very generous terms that I think are not prudent and are not scrutinized at the same level that we're examined.

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