SAN FRANCISCO–Two state regulators offered some insights into what’s unique about credit unions and regulation in their respective states, including how taxation of state charters has driven certain decision making.
Sharing their insights with NASCUS’ State System Summit here were Kate Averill, superintendent of the Iowa Division of Credit Unions, and Tom Fite, director of the Indiana Department of Financial Institutions.
Here’s a look at what each had to say:
There are 39 state-chartered CUs in Indiana compared to 115 federally chartered CUs, as well as 14 private insured state charters (two of which are over $1 billion in assets). The largest state charter is Teachers CU at $3.3 billion, the largest federal charter is Evansville Teachers at $1.7 billion.
The disparity between the number of state and federal charters in Indiana is probably not surprising, Fite acknowledged, as state charters pay the same 6.25% income tax as do banks in the state. Despite an attractive state charter, Fite said the taxation issue has been central to many discussions.
From his own perspective, for instance, Fite said there is no opportunity for critics to say any decision involving a state-chartered credit union will have negative implications on revenue for the state and that all such decisions are revenue-neutral. Some larger credit unions have made the move to a federal charter, he said, due to the taxes they have to pay. As for how the state charter might be an advantage of the federal credit unions at the other end of the asset spectrum, Fite added, “Taxation has somewhat removed any competitive advantage for small credit unions.”
Here are some of the other issues touched upon by Fite:
Dual Chartering and FOM
“I have seen a lot of benefit to society in having a dual chartering system and in providing options to align with a credit union’s business practices,” said Fite. “One area I think we are among the best in the country is field of membership. We are really close to full statewide membership. In our state you have to have counties, but can’t have all the counties where there is a first-class city SMSA, such as Indianapolis. But while we do have very lucrative field of membership rules, we still maintain that FOM should mean something. You should have the means to serve the area and should have safe and sound business practices.”
Fite described “parity” with other state CU Acts and the FCU Act as an “interesting dynamic,” and while he said he is a “champion” of parity, he believes it’s important to look at every situation individually and to ask himself, “Is this something we should be able to take to the legislature next year.”
“We’ve seen some things we believe are a little too big for parity,” Fite said. “We don’t want to abuse those powers. We don’t want to do anything to circumvent an existing law, such as around permissible investments. We are really careful, but are always open to discussion.”
CU Acquisitions of Banks
Among the changes that have taken place in the Hoosier State is in language that makes it easier for banks and credit unions to merge, said Fite. In that case, it required a change to allow credit unions to be considered a corporation in the state. Four Indiana credit unions have announced bank acquisitions since the change. Indeed, while Fite was speaking, one Indiana CU was announcing a bank acquisition, as CUToday.info reported here.
“Last year changed Indiana law to make it easier for banks and credit unions to merge,” continued Fite. “In our situation it was about redefining what a corporation was in the statute. Now a credit union sis considered to be a corporation, which opens up all the positive changes but also the limiting rules. Have had four credit unions announce acquisition since the change.”
“Secondary capital is not a problem for us,” said Fite. “If NCUA approves secondary capital, we can wholesale approve the same. But our DFI is really hung up is whatever capital comes in must be loss-absorbing. Anything short of that we probably wouldn’t go along with.”
“In-school branches are near to my heart,” he said. “We actually put out guidance on how that can be done and done better in order to foster more of that.”
Iowa is home to 86 state charters, the largest of which is GreenState Credit Union with 190,000 members and $5.4 billion in assets, the smallest of which is St. Ludmila Credit Union with just 150 members and $379,000 in assets. Averill noted there are several CUs in the state that continue to operate out of a person’s home.
“There is still room for small credit unions if they fill their niche and stick to a sustainable model,” said Averill.
As CUToday.info has reported, Iowa’s bankers have been successful in attacking the credit union tax exemption, most recently backing legislation that sought to tax CUs over a certain asset threshold. Averill said she expects similar activity when the legislature reconvenes in January of 2020.
State-chartered credit unions in Iowa pay a 5% tax on reserves.