Roger Beverage, president of the Oklahoma Bankers Association, admits he might have been a bit harsh when he recently referred to credit unions as “tax-dodging”
“That's probably over the top on my part,” Beverage said. “But I do it to make sure I get people's attention.”
Beverage's rhetorical flourish is part of long-running battle of words between banks and credit unions that has erupted again because of pending federal legislation that could boost the size of loans credit unions can make.
Gary Jones, president of Credit Union Association of Oklahoma, said allowing credit unions to make more business and commercial loans would create more jobs and enhance the U.S.
“The members of the credit unions have not been able to get money from the commercial banks because generally they're not of a size that they (the banks) are even interested in,” Jones said. “Our members have come to us and said we'd like to have some money for our business, and there is an artificial cap on what we can loan that we know is restricting our ability to respond to these requests from our members.”
Credit unions, which are nonprofit organizations, are exempt from state and federal taxes. That's a major thorn in the side of bankers, who believe increasing the size of loans that credit unions can make could cost their banks business, Beverage said.
“Their effort to get into commercial lending is nothing more than poaching existing business that already resides with taxpaying banks,” Beverage said.
The proposed law
The Small Business Lending Enhancement Act being considered by Congress would benefit only the very largest credit unions, and could be “the beginning of the end for small community banks,” Beverage said.
Credit unions currently are barred from issuing business loans in excess of 12.25 percent of their total assets. The bill would raise that business lending cap to 27 percent. Credit unions argue that allowing them to make more loans will help small firms hire, claiming that will create 140,000 jobs nationwide.
Jones said the bill would “relax the artificial restriction” contained in a 1998 bill.
“The idea is that this economy is needing jobs to stimulate growth, and the credit unions serve their members as a cooperative,” Jones said. “I don't hear PSO clamoring to tax the electric cooperatives. It's just really kind of odd that people would talk about someone in their space that happens to have a different structure.”
Beverage said increased business lending is part of credit unions' “mission creep.” Many bankers in the metro area already have ceded much of the auto loan business to credit unions, Beverage said, because they are unable to offer competitive rates due to the tax-exempt advantage credit unions hold.
While credit union members, by law, must have a common bond, Beverage said qualifying for membership has become too easy.
“Basically if you're vertical today you can qualify for membership in some credit union — I don't care where it is,” he said.
More rules, less cash
Oklahoma community banks also are being squeezed by a legion of new rules emerging from the federal Dodd-Frank legislation adopted in the wake of calls to rein in the financial sector after the 2008 economic collapse, Beverage said.
“Regulators are being extremely cautious about passing and approving loans and bankers in turn are pretty cautious about extending credit unless it's an absolute A-rated credit,” Beverage said. “To say that it's difficult to get a good grade by federal banking regulators is an understatement.”
Beverage said Rich Cordray, director of the U.S. Financial Protection Bureau, recently said bankers have too much authority to set rates for various borrowers.
“I read that two or three times and thought that's what community banks do as a practical matter,” Beverage said. “That's the art of community banking.”
The increased costs of regulation combined with a potential decrease in business lending could force some Oklahoma bankers to get out of the business “and sit on the beach and clip coupons,” Beverage said.
“Small business lending and commercial lending is really the sweet spot for small community banks; that's their bread and butter,” he said.
Despite the current dispute, Beverage and Jones said their two groups often work together to the benefit of both types of financial institutions.
That cooperation surprised U.S. Sen. Dan Boren when representatives of Oklahoma banks and credit unions made a lobbying visit to his Washington office, Beverage said, recalling that Boren exclaimed “Oh my God, dogs and cats!”
Jones said he and Beverage “work well together.”
The Small Business Lending Enhancement Act, which includes 21 Senate sponsors, was reported out of committee late last month. Jones expects it to be adopted.
“Congress has expressed an interest in helping to stimulate the economy through jobs,” he said. “I think we're kind of handing them an easy one here. It should go through.”
By the numbers
In Oklahoma, there are 235 FDIC-insured banks and savings institutions. There are 71 credit unions in the state, with a total of about 1 million members.
Basically if you're vertical today you can qualify for membership in some credit union — I don't care where it is.”