The nonpartisan Tax Foundation is urging policymakers to end the current tax exemption for credit unions.
In supporting ending the tax exemption, Tax Foundation President Emeritus Scott Hodge cited the numerous recent credit union-bank acquisitions, their reduced common-bond and field-of-membership restrictions as well as questions about their commitment to members of modest means.
“Fairness and equity demand that credit unions be put on the same tax footing as the banks they compete with,” Hodge said in the Jan. 30 report. “In an era of $2 trillion deficits, subsidizing credit unions is a luxury taxpayers can no longer afford.”
The amount of credit union assets has more than doubled in the past decade, to $2.17 trillion from $1.02 trillion, even as the number of CUs has fallen by 30 percent. The number of credit union members increased 44 percent to more than 135 million in 2022 from 94 million in 2022.
Hodge noted that CUs are not required to collect data or report progress on their expected goal of serving underserved customers. To Hodge, federal credit unions are less transparent than other nonprofits and state credit unions as they don’t need to file a Form 990 tax return.
Though the Credit Union Act of 1934 included the rules governing membership requirements, Hodge said those limits have since been rendered essentially meaningless.
Last year, the National Credit Union Administration unveiled a proposal that would allow credit unions serving more than one group to add underserved areas outside of their existing membership region. The proposal would also exempt business loans made by CUs to members in underserved areas from the CU member business lending cap; and expand the definition of an underserved area to include New Markets Tax Credit areas and any region more than 10 miles from the nearest branch of a financial institution.
ICBA President and CEO Rebeca Romero Rainey said 20 percent of this year’s bank buys are by credit unions. Credit unions have reportedly acquired more than 80 banks over the past decade. “Studies show that credit unions increasingly serve upper-income families and serve a smaller share of low-income customers than banks,” Hodge said.