Credit unions work for America

As Congress returns this week and starts reviewing the tax code, bankers — once again — are challenging the benefits of the credit union federal tax exemption. I believe, however, the American people offer a resounding rebuke to the bankers’ unfounded claims.

With credit unions’ 96 million members and growing, it’s clear Americans highly value the personalized, member-focused approach to banking that they get from a credit union, not to mention low fees and rates.

Americans have found their niche with credit unions. When members walk through a credit union’s door, they know they will get a lower interest rate and lower fees and will receive a level of service that is second to none.

Credit unions aren’t in business to make a profit. They are run by their members, for their members — not shareholders. A credit union’s earnings, therefore, go right back to members in the form of higher dividends and lower rates and fees.

This member-owned, not-for-profit structure is one of the reasons credit unions receive a federal income tax exemption. This exemption is critical to credit unions’ business model, and it provides benefits to our economy and all consumers. 

An economic study commissioned by the National Association of Federal Credit Unions last year found the total benefit to U.S. consumers from the credit union federal income tax exemption exceeds $10 billion per year. That’s a benefit to all Americans, not just credit union members. Moreover, the study confirmed that credit union rates outperformed bank rates across the board. Rates on deposits were 25 percent higher, and on car loans, they were 26 percent lower than bank rates.

The study also showed that altering the tax status of member-owned credit unions would have a devastating impact not only on credit union members across the country, but on consumers in general. We would lose, on average, more than 150,000 jobs a year over the next decade, shrink gross domestic product and see a net loss of revenue to the federal government.

If they are taxed, most credit unions would convert to banks or just go out of business. Without credit unions, which provide checks and balances in the marketplace, for-profit banks would have no reason not to increase rates and fees on consumers to enrich their shareholders at their customers’ expense.

Even though credit unions are exempt from federal income taxes, they do pay many taxes, including payroll taxes and other state and local taxes. Bankers say credit unions’ tax exemption creates an uneven playing field, but the truth is that nearly one-third of banks are Subchapter S corporations that don’t pay federal taxes on income at the corporate level.

Another telling sign that credit unions don’t have the advantage is that only two banks have converted to credit unions in recent years, while 33 credit unions have converted to banks in the past 15 years.

A February study by the Joint Committee on Taxation found that the estimated cost of the credit union federal income tax expenditure over a five-year period is only $3.9 billion. This official government number is much lower than what many bank trades have suggested, and even lower than some estimates of the cost of the Subchapter S exemption banks enjoy.

Indeed, many of the bankers’ complaints fall apart upon a review of the facts:

•  A report released by the Special Inspector General for the Troubled Asset Relief Program (TARP) found that more than one-third of the 332 banks that participated in the Treasury’s small-business lending fund program used more than half of the $4 billion received from it to help fund their exits from TARP, not to provide much-needed small business loans.

• A 2011 study commissioned by the Small Business Administration’s Office of Advocacy found that during the 2007-2010 financial crisis, credit union business lending increased as a percentage of assets as banks’ small-business lending declined.

Credit unions helped Main Street through the crisis, and they are continuing to doing it now: Small-business loans have grown to $43.5 billion, by 8.3 percent, in the 12-month period ending this June. By contrast, banks’ small-business loans have decreased .4 percent to $652.7 billion for the same period.

The credit union federal tax exemption benefits all of us. Credit unions help facilitate economic growth by offering loans at lower interest rates, paying higher interest on deposits and charging lower fees. Credit unions work for America — and with the economy struggling toward recovery, they’re needed now more than ever.

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