Our Position

Tax-Exempt Credit Unions

Position

  • ICBA urges Congress to end the unwarranted federal tax subsidy of the credit union industry and/or promote increased tax parity between credit unions and community banks.
  • ICBA staunchly opposes credit unions that exploit their tax subsidy and lax regulatory environment to acquire locally based community banks and urges Congress to use its oversight authority to investigate the National Credit Union Administration’s failure to adequately regulate and supervise the industry and to adhere to the original purpose of the credit union tax exemption.
  • ICBA opposes expanded powers for credit union service organizations, which are independently owned, for profit, and not supervised by any federal agency and supports legislation that would provide NCUA with authority to examine third-party service companies.
  • ICBA opposes NCUA’s weakening of safeguards on commercial lending, field of membership and the growing use of credit union subordinated debt, which allows outside investors to exploit the credit union tax subsidy.
  • ICBA supports applying Community Reinvestment Act requirements to credit unions comparable to and with the same asset size distinctions as banks and thrifts and urges states to prohibit the placement of public deposits in tax-exempt credit unions.

Background

The credit union tax exemption is based on an outdated 100-year-old law that has never been revisited. Since that time, credit unions have become larger, more complex, and bank-like in their size, powers, product and service offerings, and fields of membership – a trend that has sharply accelerated in recent years.

It is past time to bring credit unions into the 21st century, revoke their privileged status, and tax and regulate them as we do comparable financial institutions. Credit unions were chartered by Congress to enable people of small means with a “common bond” to pool their resources to meet their basic deposit, savings and borrowing needs.

ICBA and community banks are particularly alarmed by the recent trend of credit unions acquiring banks – effectively “weaponizing” their tax subsidy and lax regulatory standards. Larger, out-of-market credit unions are displacing smaller, locally based community banks and other credit unions, creating an environment that is less competitive, has more systemic risk, and offers fewer choices for consumers and small businesses.

Credit union acquisitions of community banks and their branches have accelerated rapidly, with the last five years seeing approximately a 400 percent increase over the previous five years. These deals transform taxable business activity at community banks into tax-exempt activity at credit unions, thereby shrinking the tax base, not only at the federal level but at the state and local level as well.

Staff Contact

Michael Emancipator

SVP and Senior Regulatory Counsel

ICBA

[email protected]

Aaron Stetter

EVP, Affiliate and Volunteer Relations

ICBA

[email protected]

Christopher Cole

EVP, Senior Regulatory Counsel

ICBA

[email protected]

Related News

Credit union field of membership application blocked in Virginia

Aug. 04, 2022

The Virginia State Corporation Commission denied Virginia Credit Union Inc.’s application to expand its field of membership to include the Medical Society of Virginia—the latest setback to the credit union industry’s efforts to increase its taxpayer-subsidized authority.

Ruling: As advocated by the Virginia Association of Community Banks, the commission said:

  • Virginia Credit Union did not prove compliance with applicable legal standards.

  • State law favors the establishment of a new credit union instead of adding a new group to an existing field of membership.

  • VACU did not establish that the formation of a separate credit union is not practicable or consistent with reasonable safety-and-soundness standards.

State Developments: The Virginia decision is the latest state government roadblock for credit unions following:

  • Colorado’s vote to defeat legislation that would have allowed credit unions to hold municipal deposits and other public funds.

  • A new Mississippi law requiring acquired bank assets to remain under the control of an FDIC-insured institution, a key obstacle for tax-exempt credit unions seeking to acquire banks in the state.

  • A Nebraska banking department decision that restricts cross-industry acquisitions or mergers to chartered financial institutions organized to do business in the state, which blocked an Iowa credit union’s application to acquire a Nebraska community bank.

Federal Activity: At the federal level, the Government Accountability Office recently called on the Office of Management and Budget to study whether tax expenditures—including the credit union tax exemption—are fulfilling their mission.

Ongoing ICBA Push: ICBA continues pressing policymakers to investigate credit unions, testifying last month that Congress should hold a hearing on applying the Community Reinvestment Act to the tax-exempt financial firms. In a recent Medium op-ed, ICBA President and CEO Rebeca Romero Rainey wrote that Congress should join the growing number of states pushing back against credit union overreach.

Grassroots: Community bankers can continue urging Congress to hold hearings on the credit union tax exemption using a customizable message to lawmakers on ICBA’s Wake Up page and its Wake Up Messaging Playbook.