Don't let banks undermine the future of credit unions
The renown motivational speaker and organizational consultant Simon Sinek advises, “Start with why.”
It’s such a simple and effective tool for understanding purpose. And it happens to be a particularly important question to answer when it comes to the credit union tax status and the wave of banker attacks in states across the country.
Why are credit unions exempt from income tax? It all comes down to structure and mission, both of which set us apart from the banks. We are not-for-profit cooperatives owned by the people we serve, which makes us fundamentally different than the for-profit corporations that use other people’s money to turn a profit for shareholders. And, we have a congressionally mandated mission to promote thrift and provide access to credit for provident proposes. We exist to serve our members and help them afford life, and that is the job that Congress has given us in exchange for the tax status.
Why would Congress do something like that? For a long time, everyday Americans did not have access to mainstream banking services. Their savings account was often a box kept under a bed. And if they needed a loan, their best financial partner was often a loan shark or worse. But then consumers started to realize that if they pooled their resources together and loaned to each other, they could help themselves and their entire community. That’s how Congress recognized that the credit union model was one that would improve Americans’ financial condition.
Some things have changed since the first credit union in 1908: Credit unions succeed every day in fulfilling their mission. We’re bigger, we serve more Americans and we have a much greater impact on the communities we serve. But some things haven’t changed, namely our structure and our mission, the underpinnings of our tax treatment.
Credit unions’ growth is an affirmation of the positive work we do for our members and the investment that Congress makes in our mission and structure. But it has also made us a target. Banks may hold the clear majority of market share; they may be making record profits; they may have just received a substantial tax cut, but they see our reputation, strong membership growth and loyalty as a threat. As a result, they’re continuing their quixotic efforts to undermine our ability to best serve our members by changing our tax treatment.
For a long time, banks focused their futile fight at the federal level. Time and again, the coordinated advocacy efforts of the Credit Union National Association and leagues held off the banks’ charges.
The Tax Cuts and Jobs Act of 2017 helped tamper banks at the federal level. They couldn’t get a single member of Congress to suggest that Congress change credit unions’ tax treatment, but they walked away from that legislation with full pockets – $30 billion in 2018 tax breaks alone – and a renewed plan to take on credit unions at the state level.
One of the largest recent fights was in Iowa, where banks were able to move through the legislature before it was finally defeated after months of campaigning by the Iowa Credit Union League and CUNA. Undeterred by their 2018 setback, the banks are back at it again with efforts focused not only on Iowa but also in Nebraska, Connecticut, and Kentucky.
These fights don’t all look the same. Sometimes the bill calls directly for a tax on credit unions. Other times bills make tax status a stipulation in broader legislative efforts. Regardless, the intent is always the same: Weaken the impact credit unions have on their members and communities by financially burdening them with additional taxes.
This is their playbook. It may not be visible in your state yet, but the banks have drawn it up to work everywhere. So far, the CUNA/league system has put on a defense to educate state lawmakers and protect credit unions from threats. But with so many states in their sight and so many resources in their pockets we can’t just continue to just react to the banker rhetoric, we must be proactive and bust the myths.
We need to tell our message to state lawmakers and consumers where bank attacks exist and where they haven’t surfaced yet. We need to dismantle the banker’s favorite talking point of “a family of four pays more taxes than the credit union down the street.”
That "free rider" argument is a lie. In 2017, credit unions generated about $12.2 billion in federal taxes and $7.4 billion in state taxes through employer, excise and property taxes. And credit union members paid about $1.5 trillion in federal and state taxes on both the proceeds distributed and interest earned on their accounts.
CUNA and leagues are uniquely positioned to take on bank attacks, but we need the support of the whole movement to make our efforts successful. We can’t let banks define who we are and what we stand for. We must be proactive in sharing our difference and protecting our model. Why? Because if they win, consumers lose.