The Off-the-Record Conversations That Need to be On-the-Record

By Frank J. Diekmann

For a while now I have had a pretty good idea what someone is about to say when they begin by saying, “Off the record, Frank, but…

And then they say out loud what had previously been whispered. That is, the motto may be “people helping people,” but there is an increasing belief that credit unions aren’t helping themselves--at all—with these professional sports franchise tie-ups and with their purchases of banks that in some cases are located numerous states away and are nowhere near the home office.

And all of this it taking place with the Senate Committee on Finance this week set to hold a hearing titled “2025 Tax Policy Debate and Tax Avoidance Strategies.” While it’s not formally part of the agenda, the hearing will include among its witnesses an organization that has been beating a drum when it comes to the credit union tax exemption: Daniel Bunn, president and CEO of the Tax Foundation. 

Last week, the Tax Foundation’s Scott Hodge appeared as part of a segment on CNBC that reported on CU purchases of banks during which he said, “I think it's time to reevaluate the tax exemption that credit unions now have because they're no longer these…membership-serving organizations. They're growing and expanding and they're essentially commercial banks masquerading as nonprofits.”

The Real Problem

America’s Credit Unions was quick to respond in a letter to the Tax Foundation, sending along the usual boilerplate language around how CUs “put members first” and about the “value” of the CU tax exemption. I’m sure the folks at the foundation printed out the letter and stuck on the office corkboard with a Post-It Note urging everyone to read it and take notes.

The real problem here is the time-tested arguments of credit unions are suddenly being tested in a new and different time, and even Thomas Jefferson’s best-written and most effectively articulated letter is little more than a crumpled piece of paper when compared to all the attention being paid to the $8-mlllion-a-year deal just signed by Northwest FCU and the NFL’s Washington Commanders for naming rights to its home stadium, which is just 13 miles from the U.S. capitol, and to the ongoing acquisitions of banks by credit unions, including a deal announced last week in which a credit union in South Carolina is buying a bank 518 miles north in West Virginia. 

The Little Man & The Optics

We’ve reported on a dozen bank acquisitions so far in 2024, and NCUA Chairman Todd Harper indicated last week he knows of about another dozen that are in the works. And that deal with the Commanders is hardly a one-off; we’ve also reported in just the last week alone about credit unions in deals with the Houston Rockets, Cleveland Browns and New Orleans Saints, respectively.  The Little Man Under the Umbrella is increasingly playing (and paying) in the big leagues.

There’s more talk in one hour in Washington about “optics” than what you’ll hear during three days at an optometrists’ convention, and all of this for credit unions, as they say, ain’t good optics in DC. The Senate hearing this week is supposed to be about the expiration of tax cuts and tax policy moving forward, but you may have heard the rumor that in DC these hearings often head right off the rails as soon as the train leaves the station. Sometimes before. In this case, it doesn’t really matter if it’s accurate, the optics here play right into the “Tax Avoidance Strategies” piece of the hearing.

Get Ready for the Questions

You can bet your first week’s Fantasy Football winnings that at least one senator, whether of their own volition or at the bidding of the banking industry, is going to ask why the federal tax exemption is being used to help pay for these deals, and how the seven-figure checks being written by the people helping people people are actually helping people? 

In their letters to the Hill, America’s Credit Unions may have all the data in the world to back up noble but abstract concepts like “member value” and “community service,” and all of it may be completely true, but we live in a meme world now and a YouTube video of a CU’s name on a stadium or a TikTok of a bank’s sign being taken down and replaced by that of a credit union is what gets the eyeballs today. And if there’s one thing senators understand, like all politicians, it’s eyeballs and attention. 

Extra! Extra! They’ve Read All About It

As I’ve written here before, I’ve been told more and more often, especially over the last year, that credit unions’ long-time status as one of the untouchable third rails in Washington has been increasingly at risk as politicians show greater willingness to get mighty close to touching it, and that includes the sacred tax exemption.

That’s because in addition to the big-time sports sponsorships and bank buys, Congress and consumers have watched as the number of billion-dollar CUs has soared; have  heard reports over Navy FCU’s alleged mortgage lending practices (even if new reports eventually prove it wasn’t engaged in bias, unfortunately, those will never get the attention of the initial stories and lawsuits alleging that it was and is); have read about some big data breaches that in recent months alone have involved more than one-million members; have seen the scrutiny being given some credit unions' OD/NSF practices, and have read and heard more of the kinds of headlines that lead to putting crisis management experts on retainer.

And while they won’t talk about it, none of this is making the job on Capitol Hill any easier for the Hill advocates at America’s Credit Unions.

The Real Value of the Exemption

As I’ve written here many times before, the real value of the CU tax exemption is not now--nor has it ever been--about the federal income taxes saved. The tax exemption forces credit unions to think about what makes them different and “exempt”—and then to act in ways that support that differentiation. When a credit union is no longer different, it is, well, you know—and that’s the last thing tens of millions of Americans really need.

If there is some good news, it is that some people are willing to talk about some of these issues. I recently had a good discussion with a CEO whose credit union has been approached about putting its name on a ballpark. Many inside the credit union, he observed, are excited about the idea. It feels good to work at a place that is well-known and high profile. And these sponsorships almost always come perks, like tickets and often even a suite at the stadium, which, let’s be honest, can be enticing to some, including board members. 

The Debate to be Had

But then that same CEO shared an observation that showed the CU spirit can still be found, admitting he would have a hard time explaining to members what it was they were really getting out of having their money spent on an expensive sports naming rights deal. “It’s a lot of money,” he told me. “And I feel like we could better spend it elsewhere. Especially with our underserved members.”

That’s the debate credit unions need to be having right now. And, as uncomfortable as it’s going to be, it can’t be off the record. 

So, who’s going to say something?

Frank J. Diekmann is Cooperator in Chief of CUToday.info and can be reached at Frank@CUToday.info. Mr. Diekmann is also author of  several new book, including the brand new “The Last Lyric,” a humorous satire about a murder investigation at the Rock & Roll Hall of Fame in which every line of dialogue is either a classic pop/rock song title or lyric. Available on Amazon, Apple iBook, Barnes & Noble and Smashwords.  Mr. Diekmann is also author of a non-fiction compilation of the very best & worst he has seen and heard in covering more than 500 CU meetings and conferences, “501 Name Tags: How Everything You Need to Know About Business Can Be Learned at a Conference & Forgotten in the Trade Show.” It is available on Amazon, Barnes & Noble, Apple, Lulu, and Smashwords.