What Really Makes Credit Unions Different

To the Editor:

We were pleased to read some of the nice things your columnist Paul Nadler had to say about credit unions in his Oct. 10 column. However, Mr. Nadler made several errors we'd like to correct.

First, the federal income tax exemption is only one, but not the major, difference between credit unions and banks. The major differences are that the credit unions are nonprofit, member-owned cooperatives with unpaid volunteers and strictly limited markets, known as fields of membership. Mr. Nadler concedes as much when he quotes an unnamed credit union leader.

Second, the "common bond" of credit unions, is not what justified the favored tax treatment. The Tax Equalization Act of 1951, which officially extended the tax exemption to state credit unions, explains: "Credit unions without capital stock organized and operated for mutual purposes and without profit will remain tax exempt." This same act, which reviewed tax exemptions of several organizations, repealed the exemptions for the S&Ls and the mutual savings banks.

Third, I don't know who told Mr. Nadler that credit unions "have so many loan losses to write off that tax legislation wouldn't hurt them for a long time," but this is simply false. A quick look at the data shows that federally insured credit unions reported record low loan delinquencies of 0.8% and loan chargeoffs of 0.4% at midyear, far below the rates for banks and thrifts.

Mr. Nadler is right, however, when he suggests that credit unions are becoming ever more attractive depositories for community savings. Besides the fact that credit unions generally pay higher interest (dividends) and offer lower rates, the reason is obvious. Once again, Mr. Nadler quotes an unnamed credit union leader to illustrate this point. "Their (credit unions') advantage is not their tax exemption, but that they listen to their member consumers."

Isn't this a lesson that all financial institutions, indeed all businesses, can learn?

Charles Zuver

Executive vice president Credit Union National Association