Iowa's biggest credit union may have to change name because of GOP budget bill

Iowa's credit unions were spared a major tax increase this legislative session after fending off a heated campaign from Iowa bankers and some GOP lawmakers.

The Iowa Credit Union League celebrated the win in a press release, saying "the voice of the people was heard." And the trade group purchased a full-page ad in the Des Moines Sunday Register thanking legislators "for protecting financial choice."

But Iowa lawmakers did take aim at the state's largest credit union, the University of Iowa Community Credit Union, through a major budget bill.

End-of-the-session appropriations legislation included a provision banning Iowa credit unions from using the names of state universities in their titles.

It deals a blow to the largest Iowa-based financial institution, which is a frequent target of Iowa bankers. They claim that the UICCU, aided by its nonprofit status, unfairly competes for business by using the name of the state's flagship university, despite having no affiliation with the school.

Sen. Charles Schneider, a West Des Moines Republican who is chairman of the Senate appropriations committee, said lawmakers included the new rule to officially separate the credit union's name from that of the University of Iowa.

"Just as a good business practice, we think it makes sense that they change to a name that doesn't infer or imply that they're somehow related to the university," he said.

Now, the credit union's board of directors is weighing its options, said credit union President and CEO Jeff Disterhoft.

"It struck us as a somewhat unusual provision to be thrown in at the last minute," he said. "Most of the conversation leading up to this point involved income taxation at the state level. So it would seem at least plausible that this provision was a way to placate the banking industry in the state of Iowa."

The law goes into effect April 30, 2019 and charges the Iowa Department of Revenue with enforcing it.

Disterhoft said the board would determine its course of action in the next month or two. The credit union can either change its name or challenge the law. But Disterhoft said the language in House File 2502 left some room for debate.

The law says credit unions "shall not include the name of any public university located in the state in its name." But it specifies that means "the State University of Iowa," the school's original title.

"We technically don’t have the University of Iowa’s name," Disterhoft said. "Its legal name is State University of Iowa. So there's some ambiguity with whether or not we truly have their name."

The Iowa Attorney General's office would not comment on the legal question in depth.

"The statute speaks for itself," said Lynn Hicks, a spokesman for the office.

Brenna Smith, spokeswoman for Gov. Kim Reynolds, declined to say how the Republican governor views the issue over the credit union's name.

"Governor Reynolds is pleased that Iowa is modernizing its outdated tax code," she said. "The bill is currently under review by the governor’s office."

Iowa's $2.1 billion GOP tax cut bill, which is still awaiting a signature from the governor, didn't touch credit union taxes, despite heated debate on the issue and an early Senate tax plan that called for raising credit union taxes.

More: Will you save money when Iowa's GOP tax cuts become law?

Iowa bankers have long argued against credit unions' not-for-profit status. But this year's highly anticipated debate over broad state tax reform offered a greater opportunity to lobby for change.

Iowa banks pay a 5 percent franchise tax on profits, while credit unions pay a smaller tax on their legal reserves. The bankers' association believes the 5 percent tax should be levied equally on the state's credit unions — particularly the largest ones, which earn tens of millions in profits, annually.

None has been targeted more than the North Liberty-based University of Iowa Credit Union. With 16 branches, 430 employees and 170,000 members, banks point to it as a prime example of credit union's growing beyond their original mission to offer financial products to underserved communities.

John Sorensen, president and CEO of the Iowa Bankers Association, called the credit union's name "deceptive," because it has no official ties to its namesake university. Since the financial crisis, bank regulators have pushed transparency and sought to weed out consumer confusion in the banking industry.

Sorensen said it's only fair to expect the same from the state's largest credit union, whose name creates confusion among Iowans, he said. Many believe they are supporting the school or Hawkeye athletics by joining, he said.

"There was a real effort to connect them very closely with our state’s largest public university," he said. "That carries benefits in marketing and it also carries with it confusion on the part of customers."

MORE: Iowa bankers push to end credit unions' 'free ride'

While banks are relieved to see the change in law over the naming issue, Sorensen said the battle over taxation will continue.

"I don’t think it’s even related to the larger debate about tax fairness with credit unions," he said. "It’s really a completely separate issue."

The bankers association was disappointed that the tax reform plan didn't include higher taxes on credit unions.

"But we believe we made some real progress we intend to build upon," Sorensen said. "This was watched throughout the nation."

MORE: Regents: Credit union's name could risk University of Iowa's reputation

UICCU previously tried to change its name to Optiva Credit Union, but members overturned the decision in a 2007 vote. And Disterhoft said few members join because of the credit union's name.

Justin Hupfer, vice president of government affairs for the Iowa Credit Union League, said bankers' push against UICCU was just an attempt to "stifle credit union competition in any fashion they can."

"The name of the credit union isn't core to the value proposition that credit union provides its members, which is great financial products at a cost less than banks offer," Hupfer said. "That part of it, regardless of the name, will continue."

MORE: Financial feud: Iowa credit unions call banks' tax claims hypocritical

He said the credit union industry expects continued battles with bankers, particularly when it comes to large institutions like Dupaco Credit Union, Veridian Credit Union and the UICCU.

"This isn't new," he said. "They’ve been trying to pick at those credit unions any way they can."