The American Bankers Association today urged the National Credit Union Administration to withdraw a proposed rule that would give federal credit unions greater incentives to spend depositors’ money on acquiring commercial real estate for leasing and on speculative real estate investments — all while allowing credit unions to avoid taxes on profits unrelated to serving their depositors.
NCUA’s proposal would require FCUs only to partially occupy acquired properties within six years of acquisition. As ABA pointed out, the proposal will “incentivize FCUs to maximize non-mission-related income from leasing out their properties,” which is “inconsistent with the limited scope of credit union operations envisioned by Congress.”
And since credit unions — unlike other not-for-profit organizations — do not pay unrelated business income taxes, the rule would maximize an FCU’s incentive to “occupy the minimum amount of space required by its regulator and leasing the remaining area,” ABA said. “This is a clear abuse of the credit union industry’s tax-exempt status.”
ABA cited as an example the recent purchase by Pentagon Federal Credit Union — the nation’s third largest by assets — of an 11-story, $164 million headquarters building in pricey Tysons Corner, Va. The rule would enable PenFed to develop adjacently purchased land for lease to outside tenants while paying no taxes on the profits from the deal. For more information, contact ABA’s Brittany Kleinpaste.