At the moment, it’s a war of words, but very soon the debate to tax credit unions will hit the streets.
This week, credit union supporters from South Florida and throughout the country will descend on Washington, D.C. to “Hike the Hill” and meet with lawmakers to stress the importance of keeping in place the federal tax exemption for credit unions.
The debate is nothing new. For years, the big banks have lobbied Congress to repeal the tax exemption status. This time around, they declared war.
Earlier this year, the American Bankers Association began advertising its anti-credit union message throughout Washington, and last month ABA executives wrote letters to President Barack Obama and Congress requesting a repeal of the tax exemption status. The ABA and their lobbyists complain that the growing financial stature of credit unions throughout the country proves that they should be taxed like banks. They even refer to the tax exemption as a government “expenditure,” which they claim should be eliminated as part of a larger tax reform and budget reduction package.
What the bankers fail to mention was that credit unions only hold 6 percent of all the financial assets in the United States while banks hold 93 percent. They also fail to mention that 96 million Americans are satisfied members of credit unions, and that for every dollar in new taxes the government might gain, it would be eliminating $10 of credit union member benefits.
The Federal Credit Union Act of 1934 established the tax-exemption status of credit unions because the structure and goals of credit unions are far different from traditional banks. All credit unions are designated as not-for-profit, which means any and all profits made are redistributed back to credit union members in the form of higher interest rates on savings accounts and reduced fees. They offer loans at the lowest possible interest rates because their mandate is to cultivate community development by assisting working families, low income households, small businesses and the middle class.
Banks operate very differently. Led by small groups of shareholders who seek to maximize return on their investment, they raise fees regardless of how much profit they accumulate. They offer loans at the highest possible interest rate because their mandate is to make money, not to assist anyone, including and especially the middle class. (It wasn’t long ago we learned this the hard way as predatory banks helped fuel the Great Recession.)
The truth is, big banks want one thing and one thing only: to get bigger. They want to merge and grow and rack-in record profits so they can grow even bigger. Credit unions are the only thing standing in the way of an oligarchy of a few major banks from controlling all of the deposited funds in the country. Their pursuit to tax credit unions is aimed at eliminating their only competition so they can be free to charge as much interest and fees as they wish without restraint.
Credit unions, while offering an alternative to banks, also offer an important financial backstop for low income families. Despite what the big banks may profess, there’s a tremendous need for the lower fees and higher deposit rates of credit unions. For example, a recent report from Pew State and Consumer Initiatives found that approximately 12 million borrowers spend $7.4 billion on payday loans each year, saddling themselves with exorbitant interest payments that often drive them deeper into debt. Many people in our country still struggle and credit unions are a worthy option.
The issue now lies in the hands of Congress. This week, credit union supporters will make their case and tell lawmakers directly that they do not want their credit unions taxed. Citizens must reach out to their representatives and call on members in both houses of Congress to join the fight against repealing the tax exemption status of credit unions.
George Joseph is president and CEO of Dade County Federal Credit Union: 305-471-5080 or www.dcfcu.org. Any individuals who feel strongly about the taxation issue are encouraged to visit http://www.dcfcu.org/notax/ and sign the “Don’t Tax My Credit Union” petition.