Bank group seizes on credit union scandal to renew transparency push.
Following allegations of a $95 million embezzlement at a Mississippi credit union, community bankers are urging Congress to require federally chartered credit unions to disclose the same tax filings as most other tax-exempt organizations.
The banking industry’s long-running campaign to increase oversight of tax-exempt credit unions gained fresh momentum this week after one of the largest alleged embezzlement cases in recent credit union history prompted renewed calls for greater transparency.
The Independent Community Bankers of America said the alleged $95 million fraud at Jackson Area Federal Credit Union in Mississippi illustrates why federally chartered credit unions should be required to file IRS Form 990, an annual disclosure document that nearly all other tax-exempt organizations must submit.
“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,” Rebeca Romero Rainey, the group’s president and chief executive, said in a statement.
The case has become one of the most closely watched credit union scandals in years.
Federal regulators placed Jackson Area Federal Credit Union into conservatorship in May after citing unsafe and unsound practices. The institution, based in Jackson, Miss., reported approximately $162.4 million in assets and 15,561 members in its most recent regulatory filing.
A federal civil lawsuit filed shortly afterward alleges that former President and Chief Executive Leigh Bridges misappropriated approximately $95 million over several years by concealing transactions through falsified accounting records.
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According to the complaint, Bridges admitted during an April meeting with members of the credit union’s board and examiners from the National Credit Union Administration that she had diverted institution funds for personal use while disguising the activity through inaccurate accounting entries.
Her attorney declined to comment on the lawsuit.
Court filings describe an array of alleged personal expenditures financed with credit union funds, including millions of dollars in luxury credit card purchases, jewelry, designer handbags, real estate, home improvements, vehicles, artwork and cryptocurrency investments. The complaint alleges that as of April, the institution’s books overstated available assets by roughly $95 million.
Against that backdrop, ICBA said the case demonstrates what it considers shortcomings in the regulatory framework governing federal credit unions.
The organization recently urged the Treasury Department and the Internal Revenue Service to revisit a longstanding exemption that allows federal credit unions to avoid filing Form 990. The disclosure form, commonly required of nonprofit organizations, includes governance information, executive compensation and financial details that are publicly available.
ICBA argues that requiring credit unions to file the form would provide members, policymakers and regulators with additional information about how tax-exempt institutions are being managed.
The group said greater disclosure could improve accountability while helping the IRS evaluate whether institutions continue to meet the standards associated with tax-exempt status.
The renewed push is part of a broader campaign by community banks challenging the federal tax exemption enjoyed by credit unions.
Community bankers have increasingly argued that many large credit unions now compete directly with banks while expanding through acquisitions, commercial lending and other activities that extend beyond their historical mission.
ICBA cited recent research that it says shows credit union acquisitions of community banks are harming local markets while community banks continue to outperform credit unions in serving higher-poverty communities. The group also pointed to polling it commissioned indicating that 60% of Republicans and 59% of Democrats support ending the federal tax exemption for credit unions with more than $1 billion in assets.
The banking trade group has also expanded its public advocacy campaign, known as “The Illusionists,” highlighting what it characterizes as regulatory and tax disparities between banks and credit unions.
The civil lawsuit seeks to recover funds allegedly diverted from the credit union and requests a jury trial. Federal regulators have not announced any criminal charges related to the case.
For ICBA, however, the allegations have become the latest example supporting its argument that Congress should revisit both transparency requirements and the tax treatment of federally chartered credit unions.
“This is exactly the kind of case that should prompt policymakers to ask whether the current oversight framework remains adequate.”
– Rebeca Romero Rainey
President & CEO
ICBA
Ken McCarthy is manager of marketing communications at Tyfone, where he monitors the credit union industry and contributes to conversations shaping its future. He previously covered credit unions and community banking for American Banker and S&P Global Market Intelligence. He holds a journalism degree from Point Park University and has more than 15 years of experience covering financial services. He is also the author of three literary fiction novels.
