Banker distorts credit union model

Frank Keating’s June 23 editorial in The Hill is business as usual for the bankers, spinning distortions about credit unions in an effort to undercut the competition and shift scrutiny away from the banking industry.

So let me set the record straight.

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Credit unions exist to serve all of their members. While credit union membership has certainly grown since the passage of the Federal Credit Union Act in 1934, the credit union business model today is the same as it was then.

Credit unions aren't in business for profit. They are run by their members, for their members – not a limited group of shareholders – and this applies whether the members are athletes or students. Earnings at a credit union go right back to members in the form of higher dividends and lower rates and fees. Credit unions also have long been recognized for their financial literacy efforts, so the credit union in question here sounds like a perfect example of a credit union formed to fulfill a core mission – helping members remain financially fit.

Credit unions do pay taxes. Though credit unions are exempt from federal income taxes, they still pay many taxes, like payroll and other state and local taxes. What the bankers aren't telling you is that nearly one-third of banks are Subchapter S corporations and don't pay federal income tax at the corporate level either.

Bankers complain that credit unions have an unfair advantage – if so, why have only two banks converted to credit unions, while over 30 credit unions have converted to banks just in the past 20 years?

Moreover, a study commissioned by the Small Business Administration's Office of Advocacy in 2011 found that bank business lending was largely unaffected by changes in credit unions' business lending, and credit unions' business lending can actually help offset declines in bank business lending during a recession. The study shows that during the 2007-2010 financial crisis, while banks' small business lending decreased, credit union business lending increased as a percentage of their assets. Clearly, credit unions continued to serve Main Street as banks turned people away.

Credit unions benefit all Americans. A 2014 independent study released by the National Association of Federal Credit Unions shows all Americans would lose an annual $17 billion in economic benefits if the credit union federal income tax exemption were eliminated.  The repeal of the credit union tax exemption would cost the federal government $15 billion in lost tax revenue, $148 billion in gross domestic product and 1.5 million lost jobs over the next decade.

The credit union federal income tax exemption benefits credit union members and bank customers. Credit unions provide a check on banks through their competitive rates and fees. In fact, the exemption results in more than $10 billion in economic benefits annually for all Americans according to NAFCU's landmark study on the value of the credit union tax exemption.

Furthermore, any effort to strip credit unions of their federal income tax exemption will have a dramatic and immediate negative impact on more than 5.5 million current and former military members, their families and survivors. As noted in a 2013 letter to Congress by The Military Coalition, any change in the credit union tax exemption "…would be to the detriment of our armed forces members and their families and, in the long term, to military readiness."

If the bankers want the advantages of being a credit union, they should convert, not try to destroy a valued business model.

Berger is president and CEO of the National Association of Federal Credit Unions.

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