Since the financial crisis on Wall Street, consumers have been finding their way to the local doorsteps of credit unions instead of corporate banks – and they are realizing that the doors are always open. While banks continue to feed from the pockets of their customers with mounting checking fees, debit fees, hidden fees, and higher interest rates, credit unions have consistently been offering, on average, lower interest rates and fee-free services.
Despite the big banks owning nearly 93 percent of all financial assets in the United States, as of March 2013 credit union membership had increased by 2.7 million – now totaling 95.7 million nationally. Seems like the public is attracted to this alternative method of financing.
In response to the growing competition, banks and industry trade groups are urging the White House and Congress to repeal credit union’s lifeline: their federal tax exemption. The exemption dates back to the 1934 Federal Credit Union Act during the big bank failure of the Great Depression. The rationale for the exemption was and still is because “credit unions are mutual or cooperative organizations operated entirely by and for their members.”
In other words, the nonprofit business structure of credit unions and their lack of capital stock allows them to operate solely for the benefit of their members. If the tax exemption were repealed, credit unions would, essentially, become banks.
As the United States begins to more seriously consider a tax reform overhaul, this will continue to become an increasingly relevant issue. Big banks, led by Bank of America, will continue to present repetitive arguments against credit unions, stating that they “have grown into … tax-exempt banks.” This argument is specifically targeted towards credit unions like Navy Federal Credit Union, the nation’s largest, with membership totaling approximately 4.3 million. The problem is that such arguments do not take into consideration the nonprofit structure, characteristic even to the largest of credit unions.
In contrast, those in favor of the exemption preservation are actually pressing to loosen regulation on credit unions. Two such proponents are Reps. Ed Royce, R-Calif., and Carolyn McCarthy, D-NY, who have co-sponsored a bill that would lift the current cap on business lending by credit unions from 12.25 percent of total assets to 27.5 percent. This would make it much easier for small businesses, the iconic backbone of the American economy, to acquire low-interest loans and create more jobs.
In such an economically challenging time, it makes no sense for the federal government to enact legislation that would prevent money from staying in the pockets of the taxpayers. Credit Unions provide a safe, localized, and quality structure for citizens to manage their funds efficiently.