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(From Real Clear Policy) –
By: Jim Nussle, President and CEO of America’s Credit Unions
As the Trump administration and Congress work to strengthen the economy and local communities, a small but powerful way for them to do so is to protect the longstanding not-for-profit tax status of the nation’s 4,500 credit unions. The House Ways and Means Committee has chosen to protect the tax-exempt status of credit unions, allowing their 142 million members to fulfill their small but indispensable role in financial services. Their colleagues in the House and Senate should follow suit.
Credit unions are not-for-profits for an important reason: banks were built for Wall Street. Credit unions were built for Main Street. Unlike banks, credit unions are member-owned financial cooperatives, not businesses that must maximize shareholder profits. The primary goal of credit unions is to serve their members and community, especially people whose banks have left them behind. Credit unions reinvest their profits in the cooperative and return them to members as reduced fees, higher savings rates, and lower home and auto loan rates.
Credit unions provided members over $27 billion in direct financial benefits last year. That figure rises to $38 billion for all consumers, who see the benefit from banks trying to match credit unions’ rates. This makes the credit union tax status one of the best investments the U.S. government makes, with a roughly 1,200 percent annual rate of return. Removing the exemption would have cost the federal government $33 billion in lost income tax revenue over the next 10 years. GDP would have been reduced by $266 billion, and 822,000 jobs would have been lost over the next decade.
Credit unions also empower members to accumulate savings, creating a source of credit for members, businesses, and other productive purposes.
Around 43 percent of all Americans belong to a credit union, 87 percent view them favorably, and 91 percent trust them (while 84 percent trust banks). Credit unions also stand out for primarily serving employees of local businesses, organizations, and other employers. Joining their employers’ affiliated credit union offers workers a free perk in the form of low-cost financial services.
Most credit unions are relatively small, typically with around $500 million in assets, and about 60% hold less than $100 million in assets. In comparison, the top 250 U.S. banks have an average of $85 billion in assets, while even midsize banks range between $10 billion and $100 billion in assets. The two largest U.S. banks are larger than the entire credit union industry combined.
Many credit unions are relatively modest operations. Many operate in “bank deserts,” providing the only established local financial services nearby. One of the smallest, Holy Trinity Baptist Church Federal Credit Union in Philadelphia, serves 80-90 members and has a meager $24,000 in assets, “But it has survived and thrived over the past 50-plus years with low overhead and a small but loyal membership,” American Banker reported. That’s true of many smaller credit unions.
Credit unions also tend to serve members of more modest means. The average income is $71,000, less than half that of a bank-only customer at $164,000. The credit union mission includes helping struggling members escape cycles of debt, achieve financial milestones, and build long-term prosperity.
This is why the Ways and Means Committee has chosen to resist—and all of Congress should, too—the banking industry’s Goliath versus David calls to eliminate credit unions’ not-for-profit status. Removing that status would impose a needless tax on millions of Americans—military members, farmers, small business owners, teachers, and families—and their communities that benefit from local credit unions.