ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release April 20, 2005 #05-17
E-mail: [email protected]

ACB SAYS COMPLEX CREDIT UNIONS SHOULD PAY TAXES

Press Release Tools
	E-mail This Press Release
	Printer-Friendly Format

WASHINGTON, D.C. — America’s Community Bankers said today that complex credit unions should be required to pay taxes because they are offering bank-like products in direct competition with community banks.

In a statement submitted to the House Ways and Means Committee, which is holding a hearing today on tax-exempt entities, ACB said: “ACB strongly believes that the rationale for the tax-exempt status of complex credit unions is no longer valid and gives credit unions an unfair government-created competitive advantage that harms community banks that compete against them.

“The free market is frustrated by those credit unions that compete head-to-head with taxpaying community banks, particularly those banks and savings associations that are in mutual form,” ACB added.

“Small community banks are competing against billion-dollar credit unions that are full service financial service providers that compete in all aspects of the financial services market,” ACB said. “Because of the tax subsidy, these credit unions are able to grow faster than the community banks with which they directly compete.”

ACB refuted credit union claims that their cooperative nature justifies a tax subsidy. ACB pointed out that mutual savings banks are cooperatively owned, just like credit unions. Their profits are reinvested in the institution, returned to members in the form of higher rates on deposits or lower rates on loans, or given to the community.

ACB noted that mutual savings institutions lost their tax exemption in 1952 when Congress determined that they had reached a sufficient degree of maturity, were very “bank-like” and competed with other taxpaying financial service providers. “Contrary to credit union industry statements forecasting that taxation will ultimately lead to their untimely demise, mutual savings institutions have not collapsed under taxation,” ACB said. Last year, the nearly 700 mutual savings institutions paid nearly $900 million in corporate taxes. By contrast, the credit union industry, with assets of more than 2.5 times the assets as mutual institutions, paid $0 in taxes.

ACB said it is a common misperception that credit unions offer only basic banking services to local hospital employees, schoolteachers and government workers. Credit unions offer commercial loans, stock, mutual funds, margin and option accounts, trust services and other sophisticated products. And many credit unions have no distinct field of membership and offer financial products and services to the general public, ACB said. For example, the LA Financial Credit Union’s field of membership includes all of Los Angeles County and its 10.1 million residents.

“The credit union industry has vehemently opposed efforts to require credit unions to engage in special efforts to serve low-income customers or neighborhoods, like banks and savings institutions,” ACB said. An editorial in the Credit Union Times asserted: “CUs’ number one obligation is to serve the changing financial needs of the members who own it,” adding that the community will also be served as a “by-product.”

“The comment is self-serving,” said ACB. “This would be like a bank saying that serving shareholders is sufficient and serving the bank’s community is a mere afterthought.”

Many credit unions also have subsidiaries known as credit union service organizations that offer such sophisticated products as trust administration and investment services. They also provide non-traditional financial services such as real estate brokerage, pre-paid legal service plans and travel agency services. “Income generated from bank-like products and non-traditional financial services offered through CUSOs should not be exempt from taxation.” ACB said.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

-30-