Battle between banks and credit unions heats up
Editor’s Note: The squabble between banks and credit unions regarding taxes has been going on for at least a decade — banks pay them, credit unions are exempt. But some bankers are making a more concerted effort for change, hoping the pro-business Trump Administration is more receptive to change. Two industry leaders weigh in on the issue.
Keep the exemption
Credit unions are tax-exempt based on their structure and their mission. They are structured as not-for-profit financial cooperatives and they have been given a mission by Congress to promote thrift and provide access to credit for provident purposes.
Banking lobbyists would like the tax status to be limited based on the products or services credit unions offer; the size of credit unions individually and as a sector of the financial services industry; their efforts to support their community and raise overall awareness; and other factors.
But these factors have nothing to do with why Congress originally conveyed the tax status, nor why it continues to be extended. The fact is credit unions' structure has not changed and they continue to fulfill their mission. Still, the banking lobbyists continue to propagate misinformed and downright misleading information about credit unions that we feel we must address.
'Credit unions comprise a small percentage of the financial services industry and, unlike banks, are statutorily restricted in their powers with limited fields of membership.' Dan Berger
Credit unions comprise a small percentage of the financial services industry and, unlike banks, are statutorily restricted in their powers with limited fields of membership (FOM). Credit union FOM are anything but generous and expansive. We continue to hear from our members that current FOM rules and regulations unnecessarily inhibit their ability to serve their communities. Additionally, our members believe that the federal credit union charter must keep pace with changes in state laws, technology and the progressiveness of the financial services industry.
Even with these restrictions and the limited market size of credit unions, they have managed to consistently pass on savings to their member-owners through better rates and member service. This is because, as nonprofit cooperatives, credit unions focus on the member and not the shareholder. Perhaps banks should spend more time and effort working to improve their own industry, rather than writing letters attacking credit unions who are upstanding contributors to their communities and membership.
Even with the outsized regulatory burden placed on the credit union industry, credit unions have continued to provide a tremendous value to our members and the economy. In previous communications to Congress and the Administration, (we) have shared the results of rigorous studies that show the broad and deep economic impact of the credit union tax status. It is clear from this research the value that credit unions provide to consumers and the greater economy because of their tax status is greater than its cost of the government.
The numbers speak for themselves when you look at big bank fines and various settlements and buy-backs stemming from the financial crisis that total over $135 billion in penalties paid by big banks.
It is important to point out that credit union spending, including executive compensation and advertising budgets, is not only carefully watched by the boards of directors of a credit union (volunteers: from its membership), but also the National Credit Union Administration, a federal agency. Credit union examiners are diligent in ensuring credit union member-owner funds are being spent in a prudent manner that best serves membership.
Finally, we know if the banking trade associations would partner with us on creating meaningful regulatory relief for the entire financial services industry, rather than attacking us in frivolous letters, we could truly advance access for financial services to all Americans.
Dan Berger is the president & CEO of the National Association of Federally-Insured Credit Unions. This column, co-written with Credit Union National Association President and CEO Jim Nussle, was adapted from a letter sent to U.S. Senator Orrin Hatch, Chairman of the Committee on Finance. The organizations represent the nation's 5,500 credit unions and their 111 million-plus members.
End the exemption
Many want to make this a bank versus credit union debate. Not so fast. It is not. The banking profession has no quarrels with the credit union industry. This debate is all about one question: Why should a family of four pay more in state and federal taxes than a $90 billion financial institution like Navy Federal Credit Union?
Navy Federal has more than 14,000 employees worldwide, with a college campus style headquarters in Virginia and another massive office in Pensacola. It sponsors the NFL Draft television coverage for millions of dollars. As a military veteran, I do appreciate their mission statement, but they hire actors to play soldiers in their television commercials. Navy Federal Credit Union does not help pay for the needs of our nation such as the war on terror, the needs of our military, our children, our veterans or our seniors.
Why should a family of four pay more in state and federal taxes than a $90 billion dollar credit union? Ridiculous, isn’t it? Yes!
Our national debt is now approaching $21 trillion. Our national debt stood at $5 trillion in 2000. (President Bush added $5 trillion in two terms, and President Obama added $10 trillion during his tenure.) Totally unacceptable! Our nation needs revenue and if credit unions, like other responsible companies, paid their fair share of taxes, the impact would be $32 billion. That is significant.
A small business of 20 employees—the heart and soul of our nation’s economy—should not be paying more in state and federal corporate income taxes than Tampa-based Suncoast, an $8 billion credit union.
'This debate is not about banks versus credit unions, but about ending corporate welfare for the credit union industry.' Alex Sanchez
Super-sized credit unions, such as Mid-Florida (a $3 billion financial institution), are sponsoring naming rights to amphitheaters and sports arenas while Florida families are working to balance their household budgets and make disciplined financial decisions. It just doesn’t make sense. These largest of credit unions often use their tax savings for commercial sponsorships and high executive salaries.
Golden One Credit Union in California paid $150 million to obtain the naming rights to the Sacramento Kings’ billion-dollar NBA arena. Is that what non-for-profits were intended to do? Sponsor the NFL draft and have stadium-naming rights? No!
This tax loophole is outdated and needs to be eliminated; each day, the idea receives more support. Recently, in the Credit Union Journal, the CEO of a small credit union wrote that the “large” credit unions should pay taxes. In fact, any credit union, no matter the size, that wants to offer bank-like services and build multi-million branches should pay taxes.
So, this debate is not about banks versus credit unions, but about ending corporate welfare for the credit union industry. It is about bringing fairness to our nation’s tax code so that a family of four struggling to pay their taxes is not paying more in taxes than a credit union that can afford to purchase stadium-naming rights, pay CEOs high salaries and build multi-million dollar branches. Credit unions say they contribute monies in sponsoring community groups. Banks do that too…and also pay taxes to support the needs of our nation.
Alex Sanchez is president and CEO of the Florida Bankers Association which has a membership base of small, regional and large financial institutions that together employ tens of thousands of Floridians, safeguard more than $500 billion in deposits and extend more than $135 billion in loans.