It must be time for Iowa lawmakers to again gather in Des Moines, as Iowa’s big credit union CEOs have reignited their campaign to preserve their multimillion dollar tax subsidy. It’s ironic that the credit unions’ first two letters to the editor are written by the chief executives of the University of Iowa Community Credit Union (UICCU) and Veridian, the very institutions that consume 60 percent of the state credit union tax subsidy and have the most lucrative executive compensation plans to show for it. But, they’re not sorry about this.
These $5 billion institutions dwarf the average community bank and traditional credit union. They love to cite supposed misdeeds of Wall Street banks to get Iowans to believe they should continue to pay the credit unions’ taxes. They suggest they are deserving of their tax subsidy, if for no other reason, so that Iowans won’t have to go crawling to Mr. Potter — the despised character in It’s a Wonderful Life. It just so happens that the executive suites of Iowa’s largest credit unions would put even Mr. Potter’s to shame. But, they’re not sorry about this.
What they won’t tell you is that Iowa has more financial institutions per capita than any other state in the country, creating one of the most competitive environments. And, community financial institutions control three quarters of the overall marketplace. As a result, Iowa is consistently rated one of the best states in which to bank. It’s this competition that creates more attractive rates for consumers, not the credit union tax exemption, which just ends up inflating credit unions’ bottom lines.
In 2018, the UICCU was publicly reprimanded by the Iowa Board of Regents for deceiving consumers into believing it was affiliated with a public educational institution. Unwilling to stop the practice on its own, the Iowa Legislature stepped in and passed a law requiring the UICCU to change its name by April 30, 2019. The UICCU has been less than honest in its marketing and branding. But, they’re not sorry about this either.
Congress has begun to take notice of certain practices of big, non-traditional credit unions. Due to their executive compensation practices, in 2018 Congress passed a provision in the Tax Cut and Jobs Act requiring credit unions paying CEO compensation in excess of $1 million dollars to pay a 21 percent excise tax. This is a small step toward accountability and protecting the interests of credit union members.
The Credit Union Times recently reported the average year-end dividend issued to members from 11 credit unions nationwide was $55. So, rather than share their burgeoning profits with members, these credit unions use it for executive compensation, new office buildings in wealthy neighborhoods, and naming rights for sports and entertainment venues.
Iowa’s two largest credit unions — the UICCU and Veridian — made more than $100 million in profits last year and paid no state or federal income tax. They made more money than the rest of Iowa’s credit unions combined. Both have now opened offices in surrounding states, so the taxpayer subsidy provided by Iowans is being shared with consumers and businesses in Nebraska and Illinois. But, they’re not sorry about this.
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Without banklike obligations to serve their whole community, large Iowa credit unions mine deposits from rural Iowa to fund growth in urban areas in Iowa and beyond our borders.
It’s time for accountability. It’s time for Iowa’s billion dollar credit unions to contribute a modest income tax to our state. Iowans wouldn’t be sorry about this.
• John Sorensen, president & CEO of the Iowa Bankers Association.