Credit unions were chartered in 1934 with the noble purpose of providing credit services to consumers of modest means who shared a common bond. To help them achieve that mission, Congress granted credit unions a tax status reserved for nonprofits and charities. Eighty-plus years later, it has become increasingly clear that the largest credit unions have strayed far from their original mission while credit union regulators have turned a blind eye. The credit union regulators readily rubber-stamp the steady mission creep, allowing credit unions to offer services far beyond their initial charter.
Today, more than 300 credit unions have assets exceeding a billion dollars yet are required to pay zero in federal income taxes. Although these billion-dollar credit unions make up just 5% of the credit union industry, they enjoy 75% of the tax benefit. Small credit unions and community banks who have stuck to their original mission are left at a competitive disadvantage.
Even more alarmingly, American taxpayers are poised to make up for credit unions’ federal income tax exemption to the tune of more than $20 billion over the next ten years. That’s $20 billion that could be used for important public services or to reduce the federal deficit.
Congress never intended for allegedly nonprofit credit unions to take advantage of their tax status by sponsoring NFL teams and NBA arenas and buying banks and ad agencies. But that’s exactly where the tax-exempt dollars are going — to increase large credit unions’ own profits.
The jig is up. It’s time for large credit unions to pay their own way.