In recent months I have seen an increase in calls for Congress to re-examine the tax-exempt status of billion-dollar credit unions. Many of these voices are claiming the largest CUs – in some cases institutions over the $500 million-asset mark – have outgrown their original charter, now behave like banks and are a threat to small credit unions.
As a small credit union with $36 million in assets, 3,600 members, one branch and 10 awesome employees, I strongly disagree. The largest credit unions are essential to the viability of our industry. While it is difficult to compete with billion-dollar institutions, I believe it would be even harder to exist without them.
The largest credit unions pay the lion's share of league and trade association dues. On both the state and national level, the dues formulas for associations are regressive. The larger the credit union, the less they pay per member or per dollar of assets. However, because of their size, they pay much more in absolute dollars than small credit unions. Their dues pay a substantial portion of the total associations' operating expenses. Without their participation, we would not be able to afford the high-quality training, advocacy and support we rely on.
Large credit unions force me to get better. There’s no question – it is tough to compete with the largest credit unions. They have economies of scale that allow them to pay a lower marginal cost for nearly every service they provide. On a per-transaction basis, they can operate more efficiently than I can. And with their resources, they can invest in innovation to bring new products to market, build market awareness and ensure their name is mentioned at least twenty times during any professional sports broadcast. But so can Wells Fargo or any other multi-billion-dollar for-profit financial institution. Rather than complaining about what my large counterparts are doing, I have to remain nimble and focused on providing a compelling reason for consumers to choose to do business with us. Competition from successful institutions of any size forces me to adopt or adapt, and consumers benefit from that, regardless of whether they are credit union members. Facing pressure from successful competition is (presumably) what free-market capitalism is all about.
Large credit unions support small credit unions. In Utah, the largest credit unions have been active supporters of smaller credit unions, sharing expertise and supporting our efforts to remain viable. I know personally the CEOs of three of the four largest credit unions headquartered here. They are individuals of talent, vision and integrity. They have not lost sight of their mission to serve members in a cooperative effort, and they do an excellent job.
Encouraging Congress to review the tax exemption of large credit unions is the equivalent of letting the camel's nose into the tent. It lends unwarranted legitimacy to the bankers' arguments that somehow large credit unions are fundamentally different from small credit unions, and therefore unworthy of their tax exemption. Small credit unions who buy into this fallacy do so at their own peril. Allowing our movement to be internally divided into an "us vs. them" mentality may sow the seeds of our own destruction.
Which could be exactly what those behind the push to tax large credit unions hope to do.
