Consumers Must Speak Up to Support CUs

We want to ensure consumers ‘get’ this point: A tax on CUs is a tax on consumers.

November 9, 2012

The juice isn’t worth the squeeze.

The first time I heard that saying, I knew precisely what the speaker meant. But, the more I thought about it, the more it became clear to me that it was much more.

And, with little doubt, next year as Congress struggles with how to deal with the federal budget, we’ll be challenged to show everyone that assaulting the credit union tax exemption—in any form—won’t be worth it.

The juice won’t be worth the squeeze.

The phrase, as I first heard it, came from a Washington insider commenting on the relative benefit of changing the tax-exempt status of credit unions. He meant, clearly: The money raised by taxing credit unions wouldn’t be worth jeopardizing the benefits all American consumers receive from the tax exemption.

Those benefits are lower rates on loans, higher return on savings, and fewer or lower fees.

For several years now, CUNA has calculated the direct financial benefits in dollars that credit unions provide to members.

In 2011, for example, the total was $6.3 billion—which, spread among all credit union members, comes out to about $68 for each member, or $130 for each member household.

Because these are averages, the numbers don’t account for how much (or how little) a given member uses a credit union. In other words: The more a member uses a credit union, the more he or she saves, and vice versa.

But if a member is a “loyal member” to the credit union, the total financial benefits are much greater than average.

The credit union tax status benefits all consumers—credit union members and those who aren’t yet members. That’s because credit union competition keeps bank savings rates higher and loan prices lower. This pushes the financial benefits to all consumers up to $10 billion annually.

But stripping away the tax-exempt status of credit unions would change all of that. In CUNA’s view, it would fundamentally alter or destroy the credit union system as we know it.

Credit unions could no longer focus on making decisions aimed at returning savings to their members in lower loan rates, higher savings rates, or fewer and lower fees. Instead, treated just like for-profit banking institutions, credit unions would face pressure to behave just like banking institutions—resulting in substantial declines in both member financial benefits and nonmember benefits as well. Again, credit unions in the marketplace positively affect bank rates and fees for all consumers.

That juice certainly isn’t worth the squeeze.

But I’ve had some additional thoughts regarding the meaning of this phrase—primarily, what it means for credit unions.

A wise lawmaker once said that “a tax on credit unions is a tax on American consumers.” While those of us in the credit union movement understand the fundamental importance of the tax exemption on our institutions, it’s not so clear members and consumers-at-large “get it.”

That’s our job in the months ahead: to ensure consumers “get” that credit unions are not-for-profit cooperatives. And that they “get” credit unions exist to provide financial services to their members, and not just to accumulate and pay
profits for shareholders.

We want consumers to “get” that the structure of credit unions translates into a better deal for them, and to “get” that if credit unions are taxed consumers will lose—and end up paying the price, typically higher, set by banks. Finally, consumers must “get” that a tax on credit unions is really a tax on consumers.

And that’s the second part of the meaning of this phrase: Our members, and consumers-at-large, must play a key role supporting our status. They’ll have to speak up, and we’ll need to help them understand why it’s so important to do so.

Because for consumers, as for us: The juice isn’t worth the squeeze.

BILL CHENEY is CUNA’s president/CEO.