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The Not-So-Secret War Between Banks and Credit Unions

By Edited Sep 10, 2015 1 0

Once the bankers eliminated all competition from the Thrift industry, they turned their sights on Credit Unions...

Over 90 million Americans bank at a credit union, which might be considered a little odd, linguistically speaking.  After all, no one "credit unions" at a bank!  Yet the fact remains that one in three people have an account at a credit union, even though most of them don't really know the difference between a credit union and a bank. 

Credit unions got their start in America in 1908, when St. Mary’s Cooperative Credit Association, America’s first credit union, was founded in Manchester, NH by French-speaking immigrants from Canada.  When these farmers and small businessmen were turned down for loans by their local bankers, they decided to band together and loan each other the money they needed.

Credit unions are not-for-profit financial co-ops, unlike banks, which are for-profit businesses owned by individuals, partnerships, or corporationsCredit unions are owned by the people who bank there, and each depositor has one equal share, whether he has $100 in his account or $1 million.  That's why credit union savings accounts are called share accounts.

Perhaps the most unique characteristic of credit unions is, they are democratically run by boards of directors elected by the depositors.  These directors are typically unpaid volunteers who devote much time and energy to ensuring the credit union is looking out for the interests of its owners, the depositors.  People often rave about how much better they're treated by credit unions, than by banks.  The difference is, you're treated like you own the place because, in fact, you do!

Since credit unions don't operate for profit, they are usually able to offer their members loans at lower rates, pay higher interest on deposits, and charge lower fees for services.  While those are all great reasons why consumers tend to love their credit unions, they are also more than enough reason for bankers to loathe them.  Since 1934, when Congress passed the Federal Credit Union Act, which established the federal credit union system, bankers have looked for ways to undo that damage to their bottom line.

One of their most persistent lines of attack has been to charge that credit unions don't pay taxes.  While it is true that credit unions are exempt from paying federal corporate income taxes because of their not-for-profit status, credit unions do indeed pay taxes in the form of federal payroll taxes,  state corporate income taxes, unrelated business income tax (UBIT), state payroll taxes, state and local sales taxes, local real property taxes, local personal property taxes, excise taxes, franchise taxes, use taxes, licenses and permit fees!

What is truly mind-boggling in its hypocrisy is the fact that even as the bankers were charging credit unions with using their tax-exemption to "unfairly compete" with community banks, fully one-third of all banks in the nation quietly converted to S-corporations,  a corporate structure which allows small businesses to avoid paying corporate income taxes by treating them as partnerships.  The end result has been almost 3000 S-corp banks today in the U.S. which pay no federal income taxes at all.  Even more audacious was the revelation that at least one of those S-corporations (remember, the S stands for small business) has over $12 billion dollars in assets!

Almost 60 years ago, the bankers lobby succeeded in convincing Congress to revoke a similar tax exemption for savings & loans associations and mutual savings banks, commonly known as "thrifts," and similar in some ways to credit unions.  The results were disastrous for the thrift industry.  In 1979, there were 4,500 thrifts in the nation.  By 2009, only 765 remained - that equates to an incredible 83% loss in just 30 years!  In the financial turmoil of that period, the industry was looted by unscrupulous investment bankers and rendered completely irrelevant to consumers in the financial marketplace. 

Today, with the thrifts eliminated as a threat, the bankers have turned their sights on America's credit unions, one of the last bastions of consumer value and good will in our communities.  If the big banks are successful in their current efforts to get Congress to regulate and tax credit unions out of existence, we will all be worse off because of it.  Studies have shown that if credit unions are taken out of the equation, even non-credit union depositors will end up pay higher prices at their banks.  After all, no one eliminates their competition just so they can lower their prices.

Concerned citizens and informed consumers should call or write to their elected representatives, and tell them it's time to stand up to the bankers, and support America's credit unions.






Credit: Ildar Sagdejev 2008, via WikiMedia. RTP Federal Credit Union, Raleigh, NC


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