The banking lobby is at it again, ramping-up efforts to feed policy makers a healthy dose of anti-credit union rhetoric. Bankers are imploring legislators at the state and national levels to impose additional taxes on credit unions and severely restrain their operations.
Credit unions, they say, harm the nation’s small banks and are “no longer focused on their original mission to serve disadvantaged members” of their communities.
But as has been the case historically, the banker narrative is woefully short on facts. Put simply, evidence of credit union harm in the banking sector is nonexistent. And the notion that credit unions aren’t focused on their historical mission is just plain hogwash.
In reality, “harm” is especially difficult to detect. Banks control 94% of U.S. financial institution assets while credit unions control less than 7%—a percentage that has been virtually unchanged for nearly 25 years.
In 1992, the largest 100 banking institutions controlled 41% of financial institution assets and smaller banking institutions controlled 53% of the total. Today, the largest 100 banks control 74% and smaller institutions control 19%.
If small banks are being harmed, the source of that harm clearly is big banks, not credit unions.
As the nation’s only member-owned, democratically controlled financial institutions, credit unions are a small but necessary—and extremely popular—financial alternative for more than 100 million Americans.
Ensuring policy makers see through and resist banker rhetoric is critically important. That’s because credit unions:
• Deliver big consumer benefits. Credit unions delivered more than $7 billion in direct financial benefits to consumers in 2014 by passing profits to members in the form of lower interest rates, higher yields on savings accounts, and fewer and lower fees.
Further, credit unions’ existence in the marketplace makes bank pricing more consumer-friendly, saving bank customers roughly $2 billion in 2014. If banks were structured like credit unions, the $861 billion in dividends they paid to stockholders over the past decade would have instead been paid to their depositors.
• Build strong communities. Unlike banks, U.S. credit unions are depositor-owned and locally controlled. While membership tends to be concentrated in the working class, credit unions do not shy away from serving members where they are most needed.
Overall, 49% of U.S. credit union branches are located in community development financial institution investment areas compared with only 42% of bank branches. And government data shows that U.S. credit unions approve 64% of total mortgage applications from low- and moderate- income borrowers.
• Serve tax-paying Americans. The banker narrative neglects to mention that credit union members already bear a substantial income tax burden— paying an estimated total of $1.2 trillion in taxes in 2014. Taxing credit unions would simply impose an additional tax liability on those 102 million member-depositors.
• Provide local ownership and control. The credit union tax exemption encourages local ownership and control in a manner that is similar to the tax treatment of banks that have elected the tax advantage of Subchapter S status.
There are nearly 2,200 Subchapter S banking institutions in the U.S., and they jointly account for roughly $545 billion in assets. While bank Subchapter S election isn’t the same as a tax exemption, it does significantly reduce Treasury revenues— by 40% compared with what those banks would pay as normal Subchapter C corporations.
Nationally, lost revenue due to bank Subchapter S election is estimated to be $872 million in 2014 and $9.8 billion since 1997.
The banking lobby’s misinformation campaign needs to be met head-on. The stakes are high. Just ask your members.
MIKE SCHENK is vice president of CUNA’s economics and statistics department. Contact him at 608-231-4228.