The credit union issues fighting to break through in Congress

September 25, 2019 5:00 AM

Credit union priorities could take a back seat as Congress scrambles to pass a spending package in order to avoid another government shutdown. Once the dust settles on that, though, a variety of credit union priorities will have to compete with for attention with issues such as impeachment, gun control and more, all within a limited time frame for lawmakers.

Read on for a look at some of the issues the industry is watching.

Aaron Passman contributed to this report.

Calendar crunch

Passage of the National Defense Authorization Act and the SAFE Banking Act show up near the top of most industry watchers’ lists for legislation most likely to move forward this year that will have an impact on CUs. And while votes on those bills are expected soon, some credit union observers have pointed out that Congress has a limited amount of time to get things done for the remainder of the year. And the bills of interest to credit unions are likely to take a back burner until items such as a government funding bill are passed. If Congress doesn’t pass a spending package by Sept. 30, the government could once again shut down.

“There are fewer days in session in September than the calendar would suggest, and finding a funding solution will take focus,” noted Ryan Donovan, chief advocacy officer at the Credit Union National Association.

Still, some important legislation for the industry “may see some action” this fall, said Brad Thaler, vice president of legislative affairs at the National Association of Federally-Insured Credit Unions. Chief among them are efforts to modernize and reform BSA and money laundering, plus beneficial ownership

“We expect those to be treated as a package in late September or early October,” Thaler said. “The Senate may reveal a similar package any time now.”

Excise tax on excess executive compensation

Credit unions could have to deal with anticipated tax liabilities related to the 21% excise tax on excess executive compensation required under the Tax Cut and Jobs Act of 2017. According to Lucy Ito, president and CEO of the National Association of State Credit Union Supervisors, the law imposes a 21% excise tax on excess executive compensation for a tax-exempt organization’s five “highest-compensated” employees. The new excise tax would apply to remuneration paid by the organization to a covered employee in excess of $1 million during the tax year.

Ito explained that the rationale for this new excise tax on non-profits was “parity” with for-profit entities, which no longer will be able to deduct costs associated with collective compensation (salary, retirement, and other executive benefits) in excess of $1 million.

“The inclusion of retirement benefit plans under this provision will result in a significant hardship for credit unions and other tax- exempt organizations, that have not had the notice and opportunity to prepare accordingly,” she said.

While the law limits the burden on the for-profit sector by providing an exemption for pre-existing executive compensation agreements in effect on or before Nov. 2, 2017, there is no comparable “grandfathering” exemption provided for similar pre-existing executive compensation agreements in the tax-exempt sector.

“We are concerned about the uneven treatment of pre-existing compensation agreements for tax-exempt organizations and have taken every opportunity to raise our issues with members of Congress,” Ito said. “We believe that simple fairness calls for Congress to either provide a similar exemption for tax-exempt organizations or rescind the excise tax altogether. Failure to provide a similar exemption for pre-existing tax-exempt compensation agreements is counterintuitive to the stated goal of achieving parity between corporate entities and tax- exempt entities going forward.”

CDFI funding

As Congress debates government funding, one element of the appropriations process that credit unions are keenly watching is how lawmakers allocate money to the Community Development Financial Institution Fund. While some of President Trump’s previous budget proposals have attempted to zero out the fund entirely, lawmakers continue to see the matter differently, and the last few years have seen increases in funding.

According to John McKechnie, a credit union consultant with Washington-based Total Spectrum and a former CUNA and NCUA staffer, the House and Senate bills differ by about $50 million, and many CUs who are acive in CDFI programs are currently working to ensure the fund gets the maximum amount possible.

“The program clearly has bipartisan support in Congress,” he said. “The Democrats historically have wanted higher numbers and Republicans in a lot of ways have supported those efforts. This year the Senate bill has just over $250 million in it and the House has $300 million. We are trying to influence the conference process so that when they do reconcile those two numbers we get the full $300 million, but we want at least as much as last year [just over $250 million.]”

The number of CDFI-certified credit unions continues to rise, but the pace has slackened significantly in recent years.

Wanted: Data breach protections

Meaningful data breach legislation continues to elude the industry, and while Congress slowly works out laws that will impact how consumers are notified in the event of a breach, several states have already moved forward with their own bills to protect consumers.

Ito said concerns remain that federal legislation could preempt stronger laws at the state level.

“We have expressed concern that past data breach notification bills would interfere with a state’s ability to determine the best mechanism for providing those protections to its citizens,” she said, adding the legislation would have preempted existing state law pertaining to data breaches and related notification requirements.

She added federal legislation “must preserve” the authority of states to regulate and supervise cybersecurity and privacy protections.

“A state’s legislature and state supervisory agency are in the best position to determine the most effective means to protect its consumers,” she said. “In the case of the 2017 Equifax breach, state laws – not federal law – led to the company be being held accountable.”

Mobilizing grass roots?

The credit union movement has historically been able to rally members to action when contacting lawmakers to pass or defeat a bill, such as a rally in front of the Iowa state capitol last year against a bill that would have taxed CUs (pictured above). Both Donovan and Thaler said it was not clear if any piece of legislation would need to rely on that sort of outreach in the weeks to come.

“There will be limited floor time, given the attention that will be given to the appropriations process, trade and gun legislation,” Donovan said. “We are used to there being a scarcity of floor time, but it is exacerbated this year. I never want to give away strategy when it comes to mobilizing grass roots. The issues I have raised lend themselves to special types of mobilization that are different from the tax issue in the past. We will call on our members when we feel there is an opportunity to use grass roots.”

Thaler said that the trade group “will have to see how it plays out,” noting NAFCU’s most immediate concern is the National Defense Authorization Act. “That could impact defense credit unions. They are very concerned about the long-term impacts it could have.”

And there is always the possibility new legislation could come forward.

As Congress gets to the end of the fiscal year, sometimes there are last-minute tax bills, Thaler noted, so he is “staying vigilant.”

“You never know when someone might try to attack credit unions,” he said.

NCUA board reform?

Some trades are also pushing for Congress to put forth legislation that would broaden the National Credit Union Administration’s board from three members to five, including a proposal from NASCUS that at least one seat carry the additional requirement of having previous experience as a state credit union regulator. One benefit of that, said Ito, is that the increased headcount at the board would make it possible for two board members to have informal discussions without triggering the formal meeting requirements of the Sunshine Act.

“This would allow for more efficient administration of NCUA business and would minimize undue NCUA staff control,” Ito said, adding more board members would increase the feedback and deliberative process.

Ito said such a structure would better ensure that the state perspective gets equal consideration, particularly given what she called NCUA’s “inherent conflict of interest” as both charterer of federal credit unions and insurer of both federal credit unions and state credit unions.

And, she added, there is precedent for Congress taking this sort of action. A 1996 amendment to the Federal Deposit Insurance Act required that one of the FDIC board members be an individual with state bank regulatory experience.

“A dedicated state credit union regulator seat on the NCUA board should have the positive effect of further fostering the dual charter system,” she said.

No proposal of this nature is currently before Congress.