Snow-Cobb/My Turn: Unfair advantage? Hardly
On July 4, Richie Davis reported on Massachusetts Bankers Association newly appointed head Michael E. Tucker. Certainly a newsworthy and honorable appointment particularly because he is representing all of Massachusetts, hailing from Greenfield! However, the anti-credit union tenor is what prompted this response.
On the American Bankers Association website, it states, “If credit unions want to act like banks, they should be taxed like banks.”
But, let’s be real. As with most other business-related issues, this is about the bottom line. One type of business (banks) believes another (credit unions) has an unfair tax advantage and wants to level the playing field to boost its profits. Keep in mind the playing field here is 94 percent owned by for-profit banks and 6 percent owned by credit unions. A little different definition of “level playing field” or, maybe, they just won’t be satisfied till they have it all. What it will be like if the banks had zero competition. Because this is exactly what will happen as most credit unions would simply go out of business if the exemption is taken away. Many recent studies show that loan rates would rise, fees would go up and convenience would go down for ALL banking customers.
Why … a bank’s first priority is to maximize shareholders’ profits — from the rates and fees it charges customers for loans and other services. A credit union’s top priority is to serve members with exceptional customer service, products, and services at fair prices. Any retained earnings go back into raising capital for the credit union. Unlike banks, retained earnings are the only way credit unions can raise capital.
Here is a little history to put all this in context and show how this worn-out argument is as silly today, as it has been for the past several decades. The 1934 Federal Credit Union Act (FCUA) stated credit unions receive a tax exemption because “credit unions are mutual or cooperative organizations operated entirely by and for their members.” Credit unions are eligible for tax-exempt status if they meet the following criteria:
∎ Operating on a not-for-profit basis.
∎ Organized without capital stock.
∎ Operating for mutual purposes.
The reason for-profit banks don’t qualify is because they cannot meet the criteria. Any bank can change its charter to meet these criteria and become a credit union to take advantage of this tax exemption. But none of them do, because they know it’s really not an advantage.
All of this was reaffirmed in 1998, as part of the findings of the Credit Union Membership Access Act. Congress found that, “Credit unions, unlike many other participants in the financial services market, are exempt from federal and most state taxes because they are member owned, democratically operated, not-for-profit organizations, generally managed by a volunteer board of directors, and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.”
Still, credit unions do pay many taxes and fees, among them payroll and property taxes. It is also important to note that share dividends paid to credit union members are taxed at the membership level. Critics argue that credit unions today are no different than banks. However, the defining characteristics of a credit union, no matter what the size, remain the same today as they did in 1934. A credit union’s shareholders are its members and each member has one vote, regardless of the amount on deposit, while a bank has stockholders.
So let’s look a little deeper as to why credit unions are successful and are seeing growth in our communities.
Suzette Snow-Cobb is president of the Valley Co-operative Business Association. She lives in Turners Falls and has worked for co-ops for 25 years. She recently earned a master’s in Management of Co-operatives and Credit Unions degree from Saint Mary’s University, Halifax, NS.