Credit unions angry over bailout tax

By Tom Philpott: CNJ columnist

Federal credit unions, including those serving millions of military patrons, are fighting to keep off their books nearly $5 billion in charges that regulators have assessed to bail out their largest “corporate” credit union.

The U.S. Central Federal Credit Union was in danger of insolvency due to losses on mortgage-backed securities until regulators adopted a bailout plan Jan. 28 that would be financed by 7,900 member-based credit unions.

“If we were to allow something to happen to U.S. Central, the impact on the industry would have been devastating,” said Michael E. Fryzel, board chairman of the National Credit Union Administration (NCUA).

But Fred Becker, chief executive for National Association of Federal Credit Unions in Arlington, Va., said NCUA’s “premiums” on member credit unions, unless lowered by September when scheduled to take effect, “would drive most of the industry’s income into the red” for calendar 2009.

Fryzel conceded that some smaller credit unions have warned their part of the “bailout tax,” as some call it, would leave them undercapitalized, threatening their viability.