CREDIT UNIONS ARE A COMMUNITY
- Dan Le
- Mar 12
- 4 min read
Updated: Mar 20
Fighting the Tax Exemption Attack by Banks
History of Credit Union Tax Exemption
In 1937, Congress in the midst of the Great Depression, provided tax exemption status to credit unions based on the idea that as member-owned, not-for-profit financial cooperatives. Credit unions served the unique role of providing financial services to all consumers, especially those of the most modest means.
This has always been and continues to be the guiding principle for all credit unions. Regardless of the asset-size of the credit union, if a person meets the field of membership criteria, they get membership regardless of their own assets.
With the Revenue Act of 1951, Congress revoked the tax-exempt status of mutual savings banks, domestic building and loan associations, and cooperative (community) banks because their operations had shifted to become more like commercial financial institutions.
What is Required of Credit Unions to Be Tax Exempt
(1) Without capital stock. The Code and Regulations require that credit unions described under Section 501(c)(14) must not have capital stock. The stock distributed by the credit unions is not capital stock because the shares were owned by the members and could not appreciate in value. The cost of a share ($5.00) was the same as when the institution was established and the buy- back of any share for $5.00; thus, there could be no gain or loss.
(2) Mutual purposes. A credit union must operate for the mutual benefit of its members and without profit in addition to being chartered under a state’s credit union law, to be exempt from federal tax under Section 501(c)(14)(A).
(3) Without profit. A credit union must operate without profit and for the mutual benefit of its members.
What is Happening Now
Today, led by the Independent Community Bankers Association (ICBA), for-profit banks are demanding Congress revoke credit union tax exempt status for credit unions with asset sizes of $1B or more.
The main reasons stated are due to the increasing purchase of banks by credit unions and sports sponsorship and naming rights spending by credit unions. The truth behind this banking attack against credit unions is based on why and not what credit unions are doing.
Banks are trying to eliminate the credit union difference and a competitor that outperforms banking in communities because we are not-for-profit. The money does not leave your town into the pockets of a few wealthy owners and shareholders to pay for their jet fuel and gated communities. It stays with you, the member-owner where you live.
Why Are Credit Unions Purchasing Banks and Advertising With Stadium Naming Rights
· Bank Purchases: As of late September, 19 credit union-bank acquisitions were announced in 2024, over the previous record of 16 acquisitions set in 2022. The reasons why are key rather than the bank hyperbole.
Smaller independent and community banks are closing and leaving many smaller communities without access to financial services. Credit unions are purchasing those bank assets and operating them as not-for-profit member-owned financial cooperatives to keep financial services accessible to affected community members.
This demonstrates why for-profit banks struggle in smaller communities as the money only goes out of town until its no longer profitable to remain.
· Stadium Naming and Sponsorship Rights:
Out of a total of 4,572 credit unions nationally (2024), 23 total have sports stadium naming rights agreements - which is approximately .0050306% of all credit unions. The total credit union spending on stadium naming rights is less than the total of what one major bank spends annually on similar naming rights.
Why do credit unions do it? Like all businesses, marketing and advertising are critical for credit unions to remain competitive with other financial services providers and grow their not-for-profit mission. Sports naming advertising allows the largest community platforms for spreading the credit union difference from that of banks.
Finally, this type of advertising and marketing directly impacts the local communities in supporting charitable enterprises and tax base where credit union members reside in stark contrast to banks which are not locally based.
What Are the Effects of Losing Tax Exempt Status
American Banker even recognizes the devastating impact consumers will lose if credit unions were to lose their tax-exempt status by finding:
"Our analysis indicates that removing the credit union tax exemption would cost the federal government $33 billion in lost income tax revenue over the next 10 years. GDP would be reduced by $266 billion, and 822,000 jobs would be lost over the next decade as well," write the researchers. "The benefit of better credit union loan and deposit rates extends to bank customers as well, due to increased competition. A 50% reduction in the credit union market share would cost bank customers an estimated $11.9 billion to $22.8 billion per year in higher loan rates and lower deposit rates."
2025 BANK LOBBYING COUNTER TALKING POINTS
Talking points to refute this bank-led and disingenuous attempt to end the credit union difference (financial services for all people over profits to a few owners and shareholders):
· The $1B threshold being advocated is intended to be competitively punitive as the Federal Reserve defines Community Banks as $10B or less in asset size.
· Banks want to monopolize the financial services industry which credit unions hold only 6% of the market.
· This historic difference with banks and need for credit unions Congress long ago adopted in granting tax exemption remains as strong as ever.
· Credit unions remain steadfast not-for-profit cooperatives owned by the members and communities they serve as they always have.
· Credit union profits benefit all member-owners’ and not that of unknown 1% bank shareholders, owners, and investors.
· Bank purchases by credit unions are necessitated by bank abandonment of those communities.
· Credit union bank purchases preserve access to financial services and opportunities in the community(s) impacted by bank closures and facing ‘banking deserts’ growth.
· For-profit banking does not survive in smaller underserved and underrepresented communities because smaller banks only remove capital from these communities until there is no profit for them left to take out of the community.
· Credit union sponsorship of sports teams is an important platform for consumers to learn and benefit from the credit union not-for-profit difference and keeps that economic benefit from those sponsorships within those communities.
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