Credit Unions versus Banks and Taxes
House Ways and Means Committee Chairman Bill Thomas wrote in a letter to the National Credit Union Association (NCUA) that his concern for NCUA's "independence and objectivity" was piqued at the Nov. 3 tax-exemption hearing, but further remarks by an NCUA Board Member have pushed him one step further.
In a March 22 Letter to NCUA Chairman JoAnn Johnson, Thomas stated that his fears of NCUA as a "promoter and defender of credit unions rather than a vigilant regulator have now been confirmed."
He cited an article on the Credit Union Times web site (cutimes.com) from March 14 covering NCUA Board Member Gigi Hyland's remarks to the California Credit Union League's Big Valley Educational Conference. From it he quoted: "'We need to view (the Ways & Means Committee's request for information) as a chance for credit unions to frame the argument themselves. We need to tell stories of people helping people in a way that will appeal to Capitol Hill,' Hyland said, explaining that Washington responds to feel-good sound bites."
Thomas added, "I ask that you be mindful of your proper role as an independent and objective regulator of credit unions as you move forward with your data collection project." He also added that he has asked the Government Accountability Office (GAO) to "expand its current review of the credit union tax-exemption to include an analysis of the independence and objectivity of the NCUA."
Currently, Credit Unions Are Tax-Exempt because:
Credit unions are not-for-profit, democratic, financial cooperatives, owned by their members.
Credit unions? boards of directors serve as unpaid volunteers, elected by members.
Credit unions, with limitations on who they can serve and restrictions on products and services, also have a social mission to provide service to people of modest means as part of their member base.
According to Credit Unions themselves, they claim:
- Credit unions were created to provide financial services in a democratic, not-for-profit, cooperative manner, meaning, with member ownership and control. Those characteristics are the foundation of the tax exemption. Early in the history of credit unions, the U.S. attorney general declared state- chartered credit unions exempt from federal income taxes because they were ?organized and operated for mutual purposes [in which an organization?s members share in the profits and expenses] and without profits.? Later on, in the 1930s, legislators passed a law to exempt federally chartered credit unions from federal income tax for the same reason. Today, legislators continue to maintain that status because credit unions, while growing and changing, still operate in this unique way.
- Credit unions' boards of directors serve as unpaid volunteers, elected by members. Credit unions return all excess income to members, in the form of higher deposit rates, lower loan rates, and lower fees. Credit unions don?t need to create profits to pay stockholders, as do banks. The amounts banks pay stockholders dwarf their tax bills: Over the past five years, they?ve paid almost $76 billion more to stockholders than in taxes.
- All taxpayers, whether members or not, benefit from the presence of credit unions in the marketplace. Credit union competition helps keep bank and savings and loan prices lower. For example, credit unions offering credit cards now charge an average two to three percentage points lower interest than other lenders. Imagine how expensive other lenders would make credit cards, or auto loans, if they didn?t have to compete with credit union rates.
They further claim that some bankers and their trade associations are asking legislators to tax credit unions, and that a tax hike on credit unions is a tax hike on all American consumers.
The American Bankers Association says the tax exemption gives credit unions an unfair and unwarranted privilege that puts banks at a competitive disadvantage. If that were true, why are banks reporting record growth and profits? In the 12 months ending September 2003, banking institution assets grew more than credit unions have grown since they began operating in the U.S. in 1908: Banking assets grew to $9 trillion (a 12-month increase of $672 billion) at the end of September 2003. Total credit union assets at the end of 2003 were $629 billion.
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