PenFed Acquires Ad Agency

Pentagon Federal Credit Union (Tyson, VA) last week announced that it had acquired a Washington-area advertising agency, WHITE64.

The advertising agency led the rebranding of Pentagon Federal Credit Union to PenFed, and launched the PenFed “Great Rates Across America” campaign.

Under the terms of the agreement, WHITE64 will retain its name and operate as a virtually autonomous unit rather than an in-house agency. The price tag of the deal was not disclosed.

Under regulations governing a credit union service organization (CUSO), the National Credit Union Administration (NCUA) designated marketing services as a pre-approved power.

The agency will continue to serve its existing customers, including Washington Metro, Koons Automotive Group, and Luray Caverns. WHITE64 will also look at expanding its clientele and will provide marketing services to other credit unions.

But according to regulation, a CUSO must primarily serve credit unions, its membership, or the membership of credit unions contracting with the CUSO. It is unclear how NCUA will enforce this provision, since it has failed to define primarily.

In addition, the agency will be structured as a limited liability company. This means the income from its operations would be taxed at PenFed's tax rate. In other words, the income from the ad agency will not be taxed.

In conclusion, marketing services are unrelated to a federal credit union's tax exempt purpose. Policymakers should require federal credit unions be treated like other tax exempt organizations and pay taxes on income from unrelated business activities.

Read the press release.