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’ exploitation of their tax subsidy and lax regulatory environment to acquire locally based community banks.
• ICBA 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.
• Credit unions should be subject to fair lending exams with the same frequency as banks. While FDIC reviews thousands of banks for compliance with fair lending laws every year, NCUA only conducts approximately 50 annual fair lending exams of credit unions.
• ICBA urges states to prohibit the placement of public deposits in tax-exempt credit unions.
• ICBA believes that federal credit unions should submit form 990 tax filings as do other tax-exempt organizations.

Background

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 unions used their tax exemption to avoid paying nearly $4 billion in federal income taxes in 2022 while holding $2.2 trillion in tax-free assets. Credit unions use this tax exemption to inflate the purchase price of banks to one-and-a-half times book value.

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. Credit unions have become larger, more complex, and bank-like in their size, powers, product and service offerings, and fields of membership. Credit unions comprise nearly half the country’s federally insured depositories. 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. NCUA has significantly deregulated field of membership (FOM) protections over that same time period.