Bank Shot

More and more, credit unions look and act like banks. So why don't they pay taxes?

POINTING UPWARD: OnPoint Community Credit Union's newest location at Northwest 20th Place and Burnside Street.

Stuart, 47, is CEO of Oregon's second-largest financial institution, with 26 branches, 501 employees and assets of $3.6 billion. His organization is growing fast and opening branches so posh they would make tellers at Chase blush. Stuart and his board of directors fly first class as a matter of policy, and the CEO raked in $1.9 million last year.

But Stuart doesn't run a bank. He's the boss at the not-for-profit OnPoint Community Credit Union.

Credit unions are no longer spartan storefronts serving low-income workers and middle-class families. In fact, they look a lot like banks.

But they don't pay income taxes. No one feels sorry for bankers—whose industry helped destroy the American economy in 2007 and 2008—when they claim credit unions are reaping an unfair advantage.

But a bill in Salem would push credit unions even further toward looking like banks—and few are asking why credit unions should continue to enjoy their historic tax exemption long after they have strayed from their public-service mission.

"What's out of balance isn't what the executives are getting paid," says Marvin Umholtz, an Olympia, Wash., consultant and former credit-union executive, "it's that credit unions are still getting a subsidy."

Credit unions' tax breaks date to 1934, when Congress decided to subsidize working-class Americans whom banks would not serve. The idea, according to the National Credit Union Administration, was to "serve the productive and provident credit needs of individuals of modest means."

A report written by Umholtz and released last month by the Oregon Bankers Association shows fewer than 1 percent of the 12,000 mortgages issued by Oregon credit unions last year went to low-income borrowers.

"Data irrefutably indicates that credit unions' mortgage-loan originations are not focused on low-income populations or distressed communities in Oregon," Umholtz wrote in his report. 

In an interview, Umholtz says the credit unions—and legislators—need to address changes in the landscape.

“Credit unions don’t serve low- and moderate-income borrowers,” he says. “They ought to quit saying that they do.” 

Seven of the 10 largest state-chartered lending institutions in Oregon are credit unions.

Credit unions are pushing Oregon Senate Bill 582, which among other things would allow Oregon credit unions to pay their boards of directors, whose members are now volunteers. Northwest Credit Union Association spokeswoman Lynn Heider says the proposed change acknowledges the complexity of directors' work.

"It's very difficult and time-consuming," Heider says.

Heider acknowledges the state's biggest credit unions now match banks' executive pay. "I compare it to other financial-service providers," Heider says. "You have to attract and hold on to the most competent people."

Bill Parish, a Portland investment adviser, says the notion of paying credit-union directors is "astonishing" and says credit unions should not be paying their leaders bank-level salaries.

"It's a complete betrayal of the fundamental intent of credit unions, which is that you serve the members first," says Parish, formerly the chief financial officer for what is now Maps Credit Union in Salem. "They should use that money for the benefit of members."

A study by EcoNorthwest produced for credit unions in January found that Oregon credit-union members got $103 million in savings from cheaper checking accounts, lower interest rates on loans and higher rates on savings accounts.

"I don't think our customers are being subsidized," Heider says. "I think they are being smart."

Credit unions originally served workers shunned by banks. OnPoint, for instance, used to be Portland Teachers Credit Union, serving the clientele its name implied.

But those barriers to credit membership have fallen. Today, OnPoint serves 276,000 members in 10 Oregon and two Washington counties. Anybody can join.

"It's hard to tell the difference between community banks and credit unions," Umholtz says. "Except one pays taxes and the other doesn't. 

WWeek 2015

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