WASHINGTON — The Independent Community Bankers of America is renewing its call for Congress and federal regulators to require federal credit unions to file IRS Form 990 information returns, arguing that greater transparency could have helped expose the alleged $95 million embezzlement scheme at Jackson Area Federal Credit Union sooner.
In a statement, ICBA said the ongoing scandal involving the Jackson, Miss.-based credit union, which is currently being operated under conservatorship by NCUA, underscores what it described as shortcomings in the oversight and transparency of tax-exempt credit unions.
The CU Daily has had extensive coverage (here and here) of the lawsuit against JAFCU and the alleged embezzlement of nearly $100 million to purchase luxury goods, homes, automobiles, private flights and more by the credit union’s former CEO and her husband.
‘Sensational and Deeply Troubling’
“The sensational and deeply troubling news of a major embezzlement scheme at a credit union that enjoys taxpayer subsidies and regulatory advantages over tax-paying community banks demands a response from policymakers,” ICBA President and CEO Rebeca Romero Rainey said in the statement.
Rainey said ICBA has long argued that tax-exempt credit unions operate with insufficient transparency and oversight, allowing what the association characterizes as “mission creep” and expanded competition with community banks. She urged policymakers to take action to address what ICBA views as disparities between tax-exempt credit unions and tax-paying community banks.
ICBA said it recently urged the U.S. Department of the Treasury and the Internal Revenue Service to eliminate the longstanding exemption that allows federal credit unions to avoid filing Form 990, the annual information return required of most tax-exempt organizations.
America’s Credit Unions Responds
“The situation at Jackson Area Federal Credit Union is a serious breach of trust and reveals missed opportunities to identify and stop the former CEO’s abuse of access and power. We condemn this behavior, and unfortunately there are always bad actors in every sector of financial services, Kathleen Coulombe, chief advocacy officer with America’s Credit Unions, said in a statement. “What we are defending against, however, is community bankers’ efforts to spin this individual situation to mischaracterize the entire credit union movement. This is nothing more than opportunistic and hypocritical politics. Banks and their trade associations are not strangers to insider abuse, fraud, and executive misconduct; their own history is well-documented. To selectively highlight a failure at a credit union while ignoring the pervasive record of similar, and often far larger, scandals within the banking industry is not a principled concern for consumers. It is a competitive attack dressed up as outrage.
“Through every economic crisis, credit unions have proven they are safe, sound, and member-focused. We will not allow isolated bad actors to be weaponized against the millions of Americans who are better served by credit unions every single day, and we will call out the cynicism behind those who try,” Coulombe added.
What Group Says Filing Form Would Do
According to ICBA, requiring federal credit unions to file Form 990 would:
- Increase transparency by making more detailed financial and governance information available to credit union members, policymakers and the public.
- Improve public accountability for tax-exempt institutions.
- Provide the IRS with additional information to help determine whether organizations continue to qualify for tax-exempt status.
The banking trade group also used it’s the alleged embezzlement to point again to recent ICBA research that it said found credit union acquisitions of community banks have harmed small businesses and local communities, while community banks outperform credit unions in serving high-poverty areas. ICBA said those findings raise questions about whether some credit unions continue to fulfill the mission that Congress originally cited in granting the industry’s federal tax exemption.
ICBA Says Americans Want Big CUs Taxed
ICBA also pointed to polling it commissioned showing bipartisan support for changes to the federal tax treatment of larger credit unions. According to the association, 60% of Republicans and 59% of Democrats support ending the federal tax exemption for credit unions with more than $1 billion in assets.
The organization said it will continue promoting its “The Illusionists” public awareness campaign, which argues that large credit unions benefit from tax and regulatory advantages while competing directly with community banks. The campaign includes advertising across streaming, digital and print platforms.
ICBA said it plans to continue working with the Trump administration and the 119th Congress to pursue legislation and regulatory changes aimed at increasing transparency and achieving what it described as greater tax and regulatory parity between credit unions and community banks.
One Response
The 990 conversation is ridiculous. In general, the bankers compare CUs to other non-profits and say we should disclose exec pay to level the playing field. First, state-chartered CUs do, which means they disclose more than any non-public bank. Not level. Second, the reason non-profits are required to disclose is a control or check that when people donate money to a non-profit, that a reasonable amount of money is going to the stated purpose of the non-profit, not to excessive expense, including exec pay. No one donates to credit unions. They make deposits that become a liability, and are at some point returned back. Call reporting, which is on parity with banks, is the mechanism to monitor and ensure that a credit union is using its members (depositors) money and capital safely, by not taking undue risk, making bad investments, bad loans, etc. Again, full parity.
So you should file 990’s because other non-profits do is incredibly weak logic. In this fraud case, the CEO didn’t defraud the org by taking a 90 million salary that is disclosable on a 990. Filing 990’s in no way whatsoever would have prevented this fraud, or others like it.
The CU’s call report, however, had all the information needed to spot red flags and ask a few questions. NCUA and Board scrutiny is fair in this case, and it’s literally indefensible this wasn’t spotted. Big, big black eye for the industry, and now the bankers are dragging out their greatest hits – need to file 990’s, need to regulated in the same way, and the tax exemption isn’t deserved. They’re doing the I told you so dance while small credit union advocacy groups are lobbying for more lax regulations, while indirectly implicating large credit unions (who aren’t the fraud and failure problem) by saying small credit unions are the heart and soul of the movement. Its irresponsible and reckless to lobby for more lax regulations, until our industry can solve the fraud and negligent management issues we have with small credit unions.