SENATE RACES IN GEORGIA GO DEMOCRAT, THUS GIVING FULL CONTROL OF GOVERNMENT POLICY MAKING – WHAT IS IMPACT OF ONE-PARTY CONTROL ON AMERICA’S CREDIT UNIONS?

The results of Tuesday’s senatorial elections in Georgia, unless an unlikely recount were to change results that seem quite clear, will result in one-party control of the entire policy making arm of the federal government – the White House, the House of Representatives and the Senate.

This has happened often in the past, most recently during the first two years of the Clinton, Obama and Trump administrations.  It also happened from 2003-2007 during the first six years of the George W. Bush administration.

However, it is significant when that happens.  In every one of those aforementioned cases, there was a major impact on public policy.  The Clinton tax increase.  The Bush tax cuts.  The passage of ObamaCare.  The Trump tax cuts.  All of these major public policy decisions made under one-party control lasted long after the one-party control came to an end and the opposing party gained control of one congressional house.

The question being asked today by Americans from all walks of life and in every industry is – what will be the impact of a Biden White House and Democrat control of the House and Senate?

As in the past when this has occurred, we can be assured that there will be significant action taken.  After all, this is what political parties live for – the opportunity to shape public policy according to their agenda without the other side being able to stop them or force them to compromise if they do not wish to.

We are not going to go into all of the issues that could be impacted by our moving into one-party Democrat control of the federal policy making mechanism.  Our Client Updates don’t focus on gun control, environmental policy, global trade issues, foreign policy, etc.  Our clients all have their own views on these types of issues and come from different sides of each.  You don’t need us to provide you with ours as you have engaged with Dollar Associates to support you on credit union issues.

Therefore, let’s look at credit union issues specifically and go in-depth into some of the impact we as credit union leaders may expect from one-party Democrat control of all of the federal policy making arms of government at least over the next two years.

MORE STIMULUS IS COMING, EXPECT THOSE DEPOSIT INCREASES TO CONTINUE

It is almost certain that, within a matter of weeks, there will be a third stimulus bill that will include at least a $2000 per qualifying taxpayer economic relief payment.  The only questions are whether it will be offset by the $600 stimulus already approved in late December or if it will be in addition to the previously approved $600 per taxpayer.

Another question is whether there will be subsequent stimulus and economic relief in the months to come.  It is certainly possible that, as the COVID era continues, this may not be the last stimulus bill in 2021.

With the impetus of the COVID economic disruption and the invoice for the stimulus costs to cover it being added to a national debt that has already passed $30 trillion without much congressional or administration concern from either party, it is quite possible that additional relief – in either stimulus relief checks, extended unemployment benefits or both – could be forthcoming again in 2021 and maybe 2022 with a Democrat majority in Congress and President Biden.

Credit unions facing increased pressure on their net worth ratios, loan to share ratios and ROA as a result of the dramatic increase in credit union deposits from the 2020 stimulus payments and PPP proceeds will unquestionably see those pressures increase in 2021 – at least in the first half of the year and possibly year long.

Factoring this deposit increase into your 2021 projections is essential.  Preparing pro formas to show the projections of how you expect the credit union during the next three to five years to perform so that you can demonstrate to your examiners that you are still building capital and managing the ALM aspect of the credit union.

It is also a good time to begin to, as we have discussed in previous Client Updates throughout the deposit growth of 2020, look seriously at implementing daily deposit management programs and alternatives for your members.

Deposit management is going to be a major, if not THE, management issue for credit unions in 2021.  Perhaps on into 2022.  This is significant when we expected the deposit influx of 2020 to be mostly off our balance sheets by the end of the first quarter 2021.  That is, obviously, not going to be the case.

PREPARE FOR A CONGRESSIONAL BATTLE ON CRA FOR CREDIT UNIONS AND NCUA VENDOR AUTHORITY OVER ALL OF YOUR CREDIT UNION VENDORS

House Financial Services Chairwoman Maxine Waters (D-CA) has stated her support many times in recent years for including credit unions under the federal Community Reinvestment Act (CRA).  She has not moved forward with the legislation to date primarily because Senate Banking Committee Chairman Mike Crapo (R-ID) has consistently demonstrated his opposition to expanding CRA.

The incoming Senate Banking Committee chairman under a Democrat controlled upper chamber will be Senator Sherrod Brown (D-OH).

Senator, soon to be Chairman, Brown is widely considered to be more of the Elizabeth Warren/Bernie Sanders philosophy when it comes to policies regarding financial institutions.  He believes in activist regulation of financial institutions, legislating strong consumer protection requirements and requiring more lending into what he considers underserved communities and individuals.

A Chairman Brown would almost certainly support imposing CRA on credit unions.  That, within itself, increases the likelihood that Chairwoman Waters may move on legislation including CRA for credit unions.

Whether there is enough support from even the Democrats on their two committees to move forward with CRA for credit unions is yet to be seen.  Without question, the industry and trade associations will absolutely fight it with all of the gusto they can generate.  Credit unions may or may not win that battle.

But it is virtually certain that a serious CRA battle is looming for the first time in over a decade.  Credit unions will need to prepare for that fight.

Likewise, the odds of likelihood that extending NCUA regulatory or supervisory authority over all credit union vendors will increase dramatically with the advent of one-party Democrat control of both houses of Congress.

We have provided you with detailed Client Updates in the past (and we will gladly provide you with an archived copy upon your request so that you can study the issue more completely) on the long-range implications of the ability of NCUA to regulate and examine any and all of your credit union vendors solely because you do business with them.

It is a huge issue from a regulatory agency authority overreach point of view.

And with a new Democrat NCUA Chairman Todd Harper coming in the next few weeks and, by virtue of his chairmanship position making him the official spokesperson for the agency and enabling him to control the legislative staff that promotes NCUA issues on Capitol Hill, he is certain to renew the agency’s push for vendor authority now that he has a Democrat House and Senate to consider his request and perhaps be more open to it.

Therefore, we recommend that you brush up on the vendor authority issue.  It’s likelihood of getting onto the legislative agenda in Congress at some point in the next two years – either initiated by Chairman Harper or his Democrat successor (the Harper term on the NCUA Board expires in April 2021) is quite likely.

AN ACTIVIST CFPB WITH A MORE ACTIVIST DIRECTOR WILL BE IN PLACE SOONER RATHER THAN LATER

President Biden is certain to ask for the resignation of current Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger.  This is not in doubt.  As a Trump appointee and with the Supreme Court having ruled last year that a CFPB Director serves at the will and pleasure of the President, Kraninger is not going to survive in her position more than a few weeks.

With the push of the Elizabeth Warren/Bernie Sanders wing of his party (coupled with Chairwoman Waters in the House and Chairman Brown in the Senate who are big supporters of an expanded CFPB with more authority and the staff to carry it out), President Biden will move on the Kraninger removal quickly after his inauguration.

If the Republicans had successfully maintained control of the Senate, they could have forced President Biden to nominate a more moderate CFPB Director if they were going to agree to confirm him or her.

However, now with the Senate controlled by his own party, President Biden can appoint a much more activist CFPB Director and be sure that the individual nominated can be confirmed easily.

The Trump era CFPB with less regulatory activism and a more nuanced approach to enforcement actions is over as of the next few weeks – maybe even by the end of January.

We are about to enter the Biden era of CFPB direction.  Expect the approach to be more along the lines of the CFPB under Richard Cordray before Kraninger took over the Bureau.

A TAX BILL IS COMING

While he was running for president Joe Biden was very clear that he wanted to repeal the Trump tax cuts and increase federal taxes on what he called “the highest earners” in America.

He defined the threshold as $400,000 per year, saying those below that amount would not have their taxes increased (although repealing the Trump tax cuts would, within itself, impact millions of taxpayers making less than $400,000).  However, he clearly said that those making above $400,000 would have a tax increase.

Well, that cannot be done by executive action.  It will require an act of Congress, now a Congress completely dominated by his party.

To revise the tax code will require a new tax bill.  By constitutional requirement, it will have to begin in the House of Representatives – although the House, Senate and White House often negotiate the details before the bill is actually introduced in the House.

Regardless, it is going to take a tax bill to make the changes President-Elect Biden promised in his campaign a reality.

Any time a tax bill is introduced, it can be amended.

That ability to amend a bill, as a result of the inevitable negotiation that will occur between the House, Senate and White House, puts the credit union tax exemption in play.

Even though I continue to believe that credit unions are well positioned in our support on both sides of the aisle for protecting the tax exemption, any time a tax bill is up for consideration in Congress there is jeopardy.

Credit unions will absolutely need to be watching any and all tax bills and negotiations to initiate one.  Even though taxing credit unions at the current corporate income tax rate would generate less than $2 billion in tax revenue annually (a literal drop in the bucket in comparison to a $30 trillion debt and annual budget deficits in excess of $3 trillion per year), don’t underestimate the banking industry’s lobbying effort to try to get Congress to consider it.

The credit union trade associations cannot carry this advocacy ball all by themselves.  All credit union leaders, paid and volunteer, must hone up their arguments in support of the economic benefit of the credit union tax exemption.  A tax bill puts anyone who pays taxes into the possibility of having to pay more and those who are tax exempt into the possibility of being added as a new tax target.

If you would like to buttress your arguments in support of the credit union tax exemption before a tax bill is negotiated and credit unions are called upon to stand up in support of retaining the tax exemption, please let us know.  We have prepared a 2020 updated white paper entitled “The Case for the Credit Union Tax Exemption.”

We will be glad to provide that white paper to you at any time upon your request.

We don’t know everything that will happen in the new administration and Congress.  But we know it is a new day.  And, with that new day, new challenges will arise.

Will we survive it?  Absolutely.  Will we have to adjust?  No question.

We believe the question of the era is, however, how can we go beyond a plan to survive and move ourselves to a plan to thrive.

As always when there are challenges, there will also be opportunities that come in the next couple of year years.  Whoever is in control in Washington and whatever public policy direction they take may make our days more challenging or less so.

However, the finding and seizing of opportunities within a changing environment is up to us as industry leaders and the direction setters of our own credit unions.

Let’s keep our focus there.

Until next time.