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Bankstocks.com: Let’s Tax Credit Unions


dcollon
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Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

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Agreed with the premise.  Don't think the legislative will exists to do it now.  What I keep hearing is that CU's are the dumb money this time around.  Maybe after we have a washout and they go begging for capital they'll be hit for taxes, or just forced to convert.

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Guest Schwab711

Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

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Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

 

Unlikely.  Tom Brown is one of the best known and well regarded bank analysts. 

 

CU's are attempting to be banks without taxes.  CU's can compete because they pay no taxes and have a very lax regulator.  Without taxes or a regulatory burden they can undercut banks. 

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The problem is that the credit unions have grown so much.  In the early days they were member oriented.  When I started my CPA practice in 1974 we were doubled up with the Teachers CU as their new building wasn't finished. The manager came in on a weekend to get some cash for a member who had a death in the family and needed to fly out. That is "service".  Wouldn't happen today as too big.

The smaller ones are still member oriented.

 

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Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

 

Ha! That was a joke right?

 

On a serious note, Mutual Savings Banks were tax-exempt until the Revenue Act of 1951 changed their status. They now pay taxes along with the banking industry. Credit Unions have also moved away from the purpose of their tax exempt charter.

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Guest Schwab711

Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

 

Ha! That was a joke right?

 

On a serious note, Mutual Savings Banks were tax-exempt until the Revenue Act of 1951 changed their status. They now pay taxes along with the banking industry. Credit Unions have also moved away from the purpose of their tax exempt charter.

 

Haha I should have put a little more thought in to the wording of my comment but I still agree with my overall opinion. A lot of this distinction goes back to the restrictions of charters in the past. The govn't choose to specifically exempt CUs in the Rev Act of 1951 because of their local focus and the restrictions on authorized investments. MSBs do not have the same geographical restrictions that CUs have. The current system highly incentivizes CUs to loan at competitive rates within a community even when national banks (or other lending institutions) will not given the lack of other investment options. In theory, because of the highly homogenized customer base, the CU should be able to provide services that better meet the needs of local customers. Without the incentives for CUs to exist we may end up with large geographical areas that are undeserved for banking/credit needs. These areas generally have a higher reliance on local economic conditions which is the reasoning behind CUs.

 

Do you view the "profits" of CUs as representing something other than rebates on the costs of banking/credit services or do you have an issue with tax rebates for this purpose? CU profits only exist because the CU was overly conservative on NPL rates or charged to high of an interest. In a perfectly predictable community, these profits would not even exist. I believe communities deserve to fully pay for their banking/credit costs if they choose to do so. Do you have any sources on CUs moving away from their local credit-providing responsibilities? Can you provide some numbers/justification for your opinion or do you agree with the author? Just like any other NPO classification there will certainly be abuse, but on the whole I think they provide a much needed service. The stated purpose behind the tax-exemption of CUs is extremely similar to the reasons behind Fannie/Freddie existing.

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Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

 

Ha! That was a joke right?

 

On a serious note, Mutual Savings Banks were tax-exempt until the Revenue Act of 1951 changed their status. They now pay taxes along with the banking industry. Credit Unions have also moved away from the purpose of their tax exempt charter.

 

Haha I should have put a little more thought in to the wording of my comment but I still agree with my overall opinion. A lot of this distinction goes back to the restrictions of charters in the past. The govn't choose to specifically exempt CUs in the Rev Act of 1951 because of their local focus and the restrictions on authorized investments. MSBs do not have the same geographical restrictions that CUs have. The current system highly incentivizes CUs to loan at competitive rates within a community even when national banks (or other lending institutions) will not given the lack of other investment options. In theory, because of the highly homogenized customer base, the CU should be able to provide services that better meet the needs of local customers. Without the incentives for CUs to exist we may end up with large geographical areas that are undeserved for banking/credit needs. These areas generally have a higher reliance on local economic conditions which is the reasoning behind CUs.

 

Do you view the "profits" of CUs as representing something other than rebates on the costs of banking/credit services or do you have an issue with tax rebates for this purpose? CU profits only exist because the CU was overly conservative on NPL rates or charged to high of an interest. In a perfectly predictable community, these profits would not even exist. I believe communities deserve to fully pay for their banking/credit costs if they choose to do so. Do you have any sources on CUs moving away from their local credit-providing responsibilities? Can you provide some numbers/justification for your opinion or do you agree with the author? Just like any other NPO classification there will certainly be abuse, but on the whole I think they provide a much needed service. The stated purpose behind the tax-exemption of CUs is extremely similar to the reasons behind Fannie/Freddie existing.

 

I disagree with your view of why CU profits exist.  IMO they are run just like banks but benefit from no taxation. They do not strive to have zero profits.  Their rates for savings are not materially higher, nor are their loan rates notably lower.  They seek profits in order to grow.  Many are regional and not local.  The credit union I have been a member of for nearly thirty years covers most of California.  It has grown to a multi billion dollar assets.  It wasn't through raising capital.  It was through profits.  In fact they nickel and dime their customers just like banks. 

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Guest Schwab711

Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

 

Ha! That was a joke right?

 

On a serious note, Mutual Savings Banks were tax-exempt until the Revenue Act of 1951 changed their status. They now pay taxes along with the banking industry. Credit Unions have also moved away from the purpose of their tax exempt charter.

 

Haha I should have put a little more thought in to the wording of my comment but I still agree with my overall opinion. A lot of this distinction goes back to the restrictions of charters in the past. The govn't choose to specifically exempt CUs in the Rev Act of 1951 because of their local focus and the restrictions on authorized investments. MSBs do not have the same geographical restrictions that CUs have. The current system highly incentivizes CUs to loan at competitive rates within a community even when national banks (or other lending institutions) will not given the lack of other investment options. In theory, because of the highly homogenized customer base, the CU should be able to provide services that better meet the needs of local customers. Without the incentives for CUs to exist we may end up with large geographical areas that are undeserved for banking/credit needs. These areas generally have a higher reliance on local economic conditions which is the reasoning behind CUs.

 

Do you view the "profits" of CUs as representing something other than rebates on the costs of banking/credit services or do you have an issue with tax rebates for this purpose? CU profits only exist because the CU was overly conservative on NPL rates or charged to high of an interest. In a perfectly predictable community, these profits would not even exist. I believe communities deserve to fully pay for their banking/credit costs if they choose to do so. Do you have any sources on CUs moving away from their local credit-providing responsibilities? Can you provide some numbers/justification for your opinion or do you agree with the author? Just like any other NPO classification there will certainly be abuse, but on the whole I think they provide a much needed service. The stated purpose behind the tax-exemption of CUs is extremely similar to the reasons behind Fannie/Freddie existing.

 

I disagree with your view of why CU profits exist.  IMO they are run just like banks but benefit from no taxation. They do not strive to have zero profits.  Their rates for savings are not materially higher, nor are their loan rates notably lower.  They seek profits in order to grow.  Many are regional and not local.  The credit union I have been a member of for nearly thirty years covers most of California.  It has grown to a multi billion dollar assets.  It wasn't through raising capital.  It was through profits.  In fact they nickel and dime their customers just like banks.

 

But it is still limited to serving a local or "regional" membership which "true" banks do not have to deal with any longer. I'm pretty sure a CU charter is the only one that comes with this restriction. Thus deposits within that membership are used to provide credit within that membership (outside a few exceptions and UST investments). I agree that not all CUs act within the spirit of the charter, but to be fair, a lot of banks (not holding companies) do not act as banks.

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all i have to add here is i got a 100% LTV, 5 yr @ 2% cash-out refi from my previously unencumbered 6 yr old 50K mile automobile from my credit union.

 

No bank would have given me that. I asked them to price out various terms and 1- 5 yr all had the same rate of 1.99%, which I thought was odd. No varying it up for increased duration? (it got higher at 6 yrs and out but even 8 yr was something like 3%).

 

the 5 yr treasury was like 1.2% when I took that puppy out (I recognize a 5 yr amortizing loan has a lower weighted average life than a bullet bond and so the comparison is not apples to apples).

 

I would never keep my money there beyond that which was necessary to secure their below market terms (like $50). Credit unions are strange animals

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Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

 

Ha! That was a joke right?

 

On a serious note, Mutual Savings Banks were tax-exempt until the Revenue Act of 1951 changed their status. They now pay taxes along with the banking industry. Credit Unions have also moved away from the purpose of their tax exempt charter.

 

Haha I should have put a little more thought in to the wording of my comment but I still agree with my overall opinion. A lot of this distinction goes back to the restrictions of charters in the past. The govn't choose to specifically exempt CUs in the Rev Act of 1951 because of their local focus and the restrictions on authorized investments. MSBs do not have the same geographical restrictions that CUs have. The current system highly incentivizes CUs to loan at competitive rates within a community even when national banks (or other lending institutions) will not given the lack of other investment options. In theory, because of the highly homogenized customer base, the CU should be able to provide services that better meet the needs of local customers. Without the incentives for CUs to exist we may end up with large geographical areas that are undeserved for banking/credit needs. These areas generally have a higher reliance on local economic conditions which is the reasoning behind CUs.

 

Do you view the "profits" of CUs as representing something other than rebates on the costs of banking/credit services or do you have an issue with tax rebates for this purpose? CU profits only exist because the CU was overly conservative on NPL rates or charged to high of an interest. In a perfectly predictable community, these profits would not even exist. I believe communities deserve to fully pay for their banking/credit costs if they choose to do so. Do you have any sources on CUs moving away from their local credit-providing responsibilities? Can you provide some numbers/justification for your opinion or do you agree with the author? Just like any other NPO classification there will certainly be abuse, but on the whole I think they provide a much needed service. The stated purpose behind the tax-exemption of CUs is extremely similar to the reasons behind Fannie/Freddie existing.

 

I disagree with your view of why CU profits exist.  IMO they are run just like banks but benefit from no taxation. They do not strive to have zero profits.  Their rates for savings are not materially higher, nor are their loan rates notably lower.  They seek profits in order to grow.  Many are regional and not local.  The credit union I have been a member of for nearly thirty years covers most of California.  It has grown to a multi billion dollar assets.  It wasn't through raising capital.  It was through profits.  In fact they nickel and dime their customers just like banks.

 

But it is still limited to serving a local or "regional" membership which "true" banks do not have to deal with any longer. I'm pretty sure a CU charter is the only one that comes with this restriction. Thus deposits within that membership are used to provide credit within that membership (outside a few exceptions and UST investments). I agree that not all CUs act within the spirit of the charter, but to be fair, a lot of banks (not holding companies) do not act as banks.

 

There is no local or regional requirement. I use Penfed for my home mortgage refis, their rates are absurd and you can become a member by making a tiny donation to some military non-profit. It's a total joke.

 

Also, a credit union can be turned into a for-profit and demutualized. There could be billions made if this idea ever gains steam.

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Guest Schwab711

Bankstocks.com opinion

 

"MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area"

 

http://bankstocks.com/lets-tax-credit-unions/

 

I feel like the author has little concept of the CUs. They are the banking equivalent of mutual insurance companies and provide a great service by providing pricing competition. The "profits" made are just partial rebates on the costs of owning a bank and services are limited regionally. I hope technology will allow CUs to thrive again (atm deals aren't cheap).

 

Ha! That was a joke right?

 

On a serious note, Mutual Savings Banks were tax-exempt until the Revenue Act of 1951 changed their status. They now pay taxes along with the banking industry. Credit Unions have also moved away from the purpose of their tax exempt charter.

 

Haha I should have put a little more thought in to the wording of my comment but I still agree with my overall opinion. A lot of this distinction goes back to the restrictions of charters in the past. The govn't choose to specifically exempt CUs in the Rev Act of 1951 because of their local focus and the restrictions on authorized investments. MSBs do not have the same geographical restrictions that CUs have. The current system highly incentivizes CUs to loan at competitive rates within a community even when national banks (or other lending institutions) will not given the lack of other investment options. In theory, because of the highly homogenized customer base, the CU should be able to provide services that better meet the needs of local customers. Without the incentives for CUs to exist we may end up with large geographical areas that are undeserved for banking/credit needs. These areas generally have a higher reliance on local economic conditions which is the reasoning behind CUs.

 

Do you view the "profits" of CUs as representing something other than rebates on the costs of banking/credit services or do you have an issue with tax rebates for this purpose? CU profits only exist because the CU was overly conservative on NPL rates or charged to high of an interest. In a perfectly predictable community, these profits would not even exist. I believe communities deserve to fully pay for their banking/credit costs if they choose to do so. Do you have any sources on CUs moving away from their local credit-providing responsibilities? Can you provide some numbers/justification for your opinion or do you agree with the author? Just like any other NPO classification there will certainly be abuse, but on the whole I think they provide a much needed service. The stated purpose behind the tax-exemption of CUs is extremely similar to the reasons behind Fannie/Freddie existing.

 

I disagree with your view of why CU profits exist.  IMO they are run just like banks but benefit from no taxation. They do not strive to have zero profits.  Their rates for savings are not materially higher, nor are their loan rates notably lower.  They seek profits in order to grow.  Many are regional and not local.  The credit union I have been a member of for nearly thirty years covers most of California.  It has grown to a multi billion dollar assets.  It wasn't through raising capital.  It was through profits.  In fact they nickel and dime their customers just like banks.

 

But it is still limited to serving a local or "regional" membership which "true" banks do not have to deal with any longer. I'm pretty sure a CU charter is the only one that comes with this restriction. Thus deposits within that membership are used to provide credit within that membership (outside a few exceptions and UST investments). I agree that not all CUs act within the spirit of the charter, but to be fair, a lot of banks (not holding companies) do not act as banks.

 

There is no local or regional requirement. I use Penfed for my home mortgage refis, their rates are absurd and you can become a member by making a tiny donation to some military non-profit. It's a total joke.

 

Also, a credit union can be turned into a for-profit and demutualized. There could be billions made if this idea ever gains steam.

 

Again, the majority of credit unions operate within the spirit of the charter. Regulators are the issue with Penfed, not the tax-free status. This practice should have been identified and halted years ago but at least changes were made to prevent this (see WSJ article below "Regulator Sets New Rules on Credit-Union Membership"). I still don't think anyone has made a convincing counter-argument for why CUs do not deserve tax-free status.

 

http://www.wsj.com/articles/u-s-credit-union-regulator-passes-new-rules-on-credit-union-membership-1430415511

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