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The quiet lobbying war you might have missed

The quiet lobbying war you might have missed

Two industries within the financial services sector are gearing up for a fight years in the making as the reconciliation process rumbles ahead.

Credit unions and community banks have never been buddy-buddy in Washington. Aligned in some places, both industries tend to represent smaller, locally-focused lenders and compete fiercely for similar types of business.

But a shifting economic, legal and lobbying environment has changed the nature of their single biggest fight — ending credit unions’ federal tax exemption.

Look back: As we reported last month, Republicans on the House Budget Committee floated an end to credit unions’ tax-exempt status in a much larger menu of pay-for options in a reconciliation package. That change has a long way to go before being seriously considered by tax writers.

But community bank advocates see a narrow opening to rally lawmakers to close what they’ve long described as a tax “loophole” for the nonprofit credit union sector.

The credit union industry has doubled in assets since 2017 — though its share of the financial sector has stayed flat — and some larger players have demonstrated an M&A appetite for smaller banks. That has made smaller community banks increasingly nervous.

Lobbying look: Whether or not the tax exemption push has serious legs, this policy fight will offer both lobbies their first serious test — and display of force — for the second Trump administration.

Rebeca Romero Rainey, CEO of the Independent Community Bankers of America, said the tax exemption issue was “nothing new.”

“What is new is the record number of acquisitions of tax-paying community banks by tax-exempt credit unions that is garnering the attention of policymakers in Washington,” Romero Rainey said.

The ICBA is changing its strategy in one notable way for the 119th Congress, according to people familiar with the group’s advocacy efforts. The trade group is expected to advocate for lawmakers to limit the tax exemption to credit unions worth less than a billion dollars, rather than a wholesale end to the tax benefit.

Are credit unions especially worried? Not so, says America’s Credit Unions CEO and former GOP Rep. Jim Nussle (Iowa). Nussle said he didn’t blame community banks for their push, and his read of the landscape facing their advocates was brutal.

“Smaller banks are under more pressure than they ever have been. They’re going out of business,” Nussle said. “That pressure is not so much putting pressure on small banks as much as it’s putting pressure on the bank lobbyists, the small bank lobbyists. They are losing members hand over fist. Their voice is shrinking dramatically.”

Nussle argued credit unions have stepped up to service areas where community banks have shuttered. “In many instances, credit unions are taking the place of many of those small banks in service to communities and consumer members like never before. And I think that’s putting the pressure on the small banks, like ICBA and others like that, and it’s the reason why they’re rolling out the tax-credit-union bandwagon,” Nussle added.

Romero Rainey fired back. “ICBA continues to note how credit unions are increasingly straying from their founding mission and have come under increased scrutiny for redlining violations and multimillion-dollar stadium naming rights deals,” she said.

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Editorial photos provided by Getty Images. Political ads courtesy of AdImpact.