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Weekly Recap — CU tax exemption not yet out of the woods

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Weekly Recap — CU tax exemption not yet out of the woods

The weekly recap features news on regulatory actions, mergers and other issues facing the credit union space. Send tips, ideas and chatter to ken.mccarthy@spglobal.com.

In the spotlight

Congress on July 27 released a broad framework of tax reform, and the credit union tax-exempt status was not addressed. Credit Union National Association President and CEO Jim Nussle quickly released a statement saying the group believes the credit union tax status should be preserved in part because taxing credit unions would represent a tax increase on 110 million taxpayers who paid $1.2 trillion in taxes in 2014.

But former National Credit Union Administration board member Geoff Bacino said credit unions are not yet out of the woods. In a newsletter, Bacino said Treasury Secretary Steven Mnuchin has laid out a timetable that would have a final tax reform bill on the president's desk by year-end. Mnuchin would like to eliminate deductions to help pay for the tax cuts, Bacino said. Those cuts currently focus on the middle class and businesses.

Other than increasing taxes on the wealthy, the only way to pay for the plan would be to cut deductions, which is why credit unions must pay attention, Bacino said. "Even with all the work that has been done to protect the tax exemption in the past, this threat could be greater than those because it might be done in a stealthy manner," he said. If the way that the healthcare repeal was written is any indication, deductions could be eliminated without any input from the affected groups. Both political parties seem to be willing to keep the details of major bills out of the public's eye and away from any outside influence, according to Bacino. "This could be hazardous for the tax exemption," he said.

The demise of the healthcare bill further complicates the tax reform issue because the White House was planning to use some of the savings in the healthcare bill to pay down some of the costs of the tax cuts. Without that savings, there is an even greater need for revenue, Bacino said.

In other news

* The NCUA will continue attempting to renegotiate legal fees that resulted from its efforts to make recoveries from large banks that sold faulty residential mortgage-backed securities to five corporate credit unions at the start of the financial crisis. Outside counsel has received, to date, more than $1.1 billion in legal fees. But so far the regulator has not been successful in amending the agreements.

* A similar but slightly more progressive strategic philosophy could emerge at Members 1st FCU if the credit union's board makes its acting CEO the permanent replacement. In early July, it named George Nahodil acting president and CEO after the death of its leader, Robert Marquette. Marquette was not a fan of growth by mergers, telling S&P Global during an interview in May, "why would we want to take on someone's problems?" But Nahodil said there are circumstances in which a merger can make sense for both parties. "I've seen it work, even in our market," he said.

* Citing the need to help consumers understand the differences between opting in and opting out of overdraft coverage, the Consumer Financial Protection Bureau released four prototypes for overdraft disclosures on Aug. 4. The "Know Before You Owe" disclosures detail the size of overdraft fees and describe when they can be charged. The disclosures also detail the optional nature of debit and automated teller machine overdraft coverage, since financial institutions are required, by default, to block any debit card purchase or ATM withdrawal that exceeds the amount of funds available.

* The NCUA issued a prohibition notice against former Pekin, Ill.-based Tazewell County School Employees CU President and CEO Charles Juska. He pleaded guilty to five counts of bank fraud, five counts of misapplication of credit union funds, and false entry in credit union records. Juska is currently serving a three-year prison term and was recently ordered to pay $596,000 in restitution.

* The NCUA on Aug. 9 will hold a webinar to discuss the agency's proposed plan to close the temporary corporate credit union stabilization fund. In July, the regulator announced preliminary plans to close the fund in October and return $600 million to $800 million back to credit unions in the first half of 2018. Larry Fazio, Director of Examination and Insurance and CFO Rendell Jones will take questions about the plan. The NCUA said the webinar is not intended to field stakeholders' comments on the proposal.