8 THE NAFCU JOURNAL January–February 2022 WASHINGTON AND INDUSTRY BRIEFS CREDIT UNIONS VS. BANKS For years, banks and credit unions have continuously clashed on various legislative, regulatory and organizational differences. From issues such as the credit union tax-exempt status, consumer benefits and overall organizational imbalances, banks and credit unions tend to disagree. Here are a few recent brawls between the two that spotlight the credit union difference. Net Earnings There remains a large disparity among bank and credit union net earnings. The 100 largest banks earn just as much in one month as the entire credit union industry earns in one year. This proportional indifference makes it difficult for the two to align. Banks are for-profit, tending to increase rates for consumers to help them make a profit, whereas credit unions remain consumer-friendly and frugal with their rates. Tax-Exempt Status One major ongoing dispute between banks and credit unions centers around the credit union tax-exempt status. Banks argue that credit unions have an unfair advantage when it comes to their tax- exempt status; however, a recent independent study commissioned by NAFCU proves otherwise. The study examines the benefits brought to consumers, businesses and the U.S. economy by the credit union federal income tax exemption. Specifically, it found that removing the tax exemption status for credit unions would reduce tax revenue by $56 billion, reduce economic activity by $120 billion and eliminate nearly 80,000 jobs per year over a decade. In their report, the authors also noted the ways bank customers benefit from the role credit unions play in the marketplace. “The benefit of those better rate offerings extends beyond credit union members to bank customers as well, due to increased competition,” they wrote. The study also found that the credit union tax exemption benefits all households—including both members and non-members—to the tune of $15 billion a year. Of note, direct benefits to credit union members from these lower rates range from $4.4 to $10.7 billion annually over the past ten years. Bank lobbyists have launched numerous campaigns calling for the removal of credit unions’ tax exemption status even though, under the Tax Cuts and Jobs Act, banks received $95 billion in tax breaks—an amount that far exceeds the credit union tax exemption. Not to mention, credit unions use this tax-exempt status, which has been reaffirmed by the IRS, Treasury Department, Congress and their not-for-profit cooperative structure to focus on providing consumers with better rates, lower fees and going above and beyond to serve the communities in which they operate. Visit www.nafcu.org/cutaxexemption for more on this topic. Consumer Treatment Credit unions periodically call out banks for taking advantage of their consumers. Since the financial crisis of 2008, banks have paid $243 billion in fines for violating numerous consumer laws. In addition, credit unions like to highlight the fact that banks constantly spend hundreds of billions in buying back shares of their own stock to increase internal revenue, therefore hurting their customers as well as the general public. Conclusion Banks and credit unions have long fought on these issues, among others, with each other. After looking at the full picture, it’s necessary to recognize the large differences between the two financial institutions. Credit unions are encouraged to join NAFCU in its advocacy to educate Congress on these facts and to fight back against banker attacks.
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