How are credit unions and banks different?
Not-for-profit vs. For-profit
Credit unions are not-for-profit financial cooperatives and are fundamentally different
from for-profit banks in many ways. Because these differences provide significant benefits
to our communities, Congress has exempted credit unions from paying federal
income taxes (but not from all taxes). The banking industry continually challenges the
credit union tax exemption, so we must make sure that our communities understand the
value of credit unions and the importance of the tax exemption.
What are the differences?
| Credit Unions |
Banks |
| Equally owned and managed by all their members; anyone in good standing can run
for the Board of Directors |
Owned by their stockholders, with wealthier stockholders having greatest say in
how things are run |
| Exist to help consumers build their wealth; measure success through member
satisfaction; have severe restrictions on raising capital |
Exist to profit through fee income and investments or by raising capital
through selling shares and buying or selling acquisitions |
| Are not-for-profit financial cooperatives |
Are for-profit businesses that keep their earnings |
| Membership is limited. Not everyone can join,
but all members are equal--from workers to small business owners. |
Anyone can be a customer, but bigger
businesses get really good treatment and rates. |
| Earnings go back to members as better rates and
fewer fees |
Profits go back to the stockholders, not to the
banking customers |
| Pay all payroll, property, and applicable sales taxes |
Pay federal income taxes, though many smaller
banks are exempt |
The Value of Credit Unions remaining tax exempt
How do you benefit?
Credit unions provide benefits to members through higher dividend rates on deposits,
lower rates on loans, and fewer fees. Credit unions also benefit whole communities by
providing healthy competition that helps drive bank rates lower. What bankers are
really complaining about is that credit unions have better rates than they do--but
despite this, banks have far larger assets and money under their management than
credit unions do.
Why are credit unions tax exempt?
The truth is, we pay many of the same taxes that banks do--it's just the corporate earnings
tax that we don't pay. Congress decided in 1937 to exempt credit unions from federal
income tax because of their unique structure and role in the financial services industry.
The tax exemption was reaffirmed by Congress in 1951 and again in 1998. Credit unions
continue to provide a valuable alternative to the for-profit banking system serve
people who have no other access to financial services.
Could credit unions lose their tax exemption?
The banking industry repeatedly asks legislators to tax credit unions. They say the tax
exemption gives credit unions an unfair advantage and hurts bank profits. If that
were true, why are banks reporting year after year of record profits? Clearly, the
credit union tax exemption has not affected bank profits and continues to help credit
unions serve their members well.
Why should credit unions remain exempt from corporate taxes?
For starters, we're cooperatives--not corporations. The facts that convinced Congress
to originally grant credit unions their tax exemption remain true today. However, if
credit unions lose their tax-exempt status, they will have to pass along their tax
payments in higher fees, higher loan rates, and lower savings dividends to their members,
just like banks do. In the end, a tax on credit unions is a tax on you.
Why it's important to educate our communities about credit unions
It is vital to educate yourself and your family and friends about the credit union
difference. Your voice matters, even though bankers are using lobbying and advertising
to help promote their viewpoint. If credit unions have an "unfair tax advantage," then
why don't banks become credit unions? They don't because they'd lose their for-profit
benefits.
Thank you for taking the time to read this. Please take another moment to share your
thoughts on the credit union movement at
you-belong.org.