For-profit banks are lobbying Congress to change the rules as thousands of Americans switch to not-for-profit financial institutions.
Cooperatively run credit unions used by 96 million Americans could lose their tax exempt status if Congress approves a proposal from big banks to tax the not-for-profit financial institutions. Behind the push to impose a tax on credit unions is the American Bankers Association (ABA), an lobbyist organization representing the $13 trillion U.S. banking industry.
Credit unions have been around for decades, but have enjoyed a sharp increase in popularity in the wake of the Occupy Wall Street movement — when activists urged customers to open accounts with credit unions as a way to avoid fees for bank services as well as the profit imperative weighing on for-profit corporate banks. In four of the last five fiscal quarters, credit unions have gained at least 600,000 new members, pushing the total up to 2.7 million since 2012, according to a recent report by Credit Union magazine.
Big banks vs. credit unions
Despite controlling 94 percent of financial assets in the U.S., big banks have responded to the surging popularity in credit unions by turning to Congress, where they hope to pass a tax.
“Many tax-exempt credit unions have morphed from serving ‘people of small means’ to become full-service, financially sophisticated institutions,” Frank Keating, president of the ABA wrote to President Obama in June.
“The time has come to abolish this exemption,” Keating added. The Los Angeles Times reported in July that that the letter is part of a massive PR blitz that includes print and radio ads in Washington D.C.
The ABA did not respond to Mint Press News’ request for comment when contacted for this story.
Credit unions representatives say that they are confident that they can keep their tax exempt status. “I think its a nonsensical argument,” said said Paul Gentile, executive vice president of the Credit Union National Association (CUNA) in a statement to Mint Press News. “We are all of a sudden not allowed to offer services to our members? They offer checking accounts, we offer checking accounts. They offer mortgages, we offer mortgages. The difference is that we don’t offer complex, mega million commercial loans. We are here to serve our members.”
CUNA is a not-for-profit trade group governed by volunteer directors who are elected by their credit union peers. According to the group’s website, CUNA serves 90 percent of America’s 7,200 state and federally chartered credit unions.
In response to the push by big banks to tax credit unions, CUNA has launched its own online ad campaign called “Don’t Tax My Credit Union,” aimed at protecting credit unions’ tax-exempt status.
The ad reiterates the long-held policy of credit unions to operate as not-for-profit institutions that serve the financial-service needs of customers. Unlike banks that generate profit for shareholders and corporate executives, most credit unions pass on profits to account holders. Gentile told Mint Press News that collectively, CUNA credit unions give back about $8 billion each year to their members.
“We are not-for-profit financial cooperatives. It’s not an issue except for the bankers. There is not one member of Congress who has talked openly about supporting the taxation. Banks have been pushing this for the past 30 years. We give back about $8 billion a year in benefits. Credit unions charge fewer and lower fees, its been like that forever,” Gentile said.
This tax could force credit unions to become for-profit banks by forcing many to impose similar fees for banking services.
The Los Angeles Times reports that the tax exemption cost $1.6 billion this year in taxes avoided and would rise to roughly $2.2 billion annually in 2018, according to Obama’s proposed 2014 budget.
It may sound like a large sum, but credit unions say it would barely put a dent in reducing the deficit, which stands at over $16.7 trillion.
The growing number of credit union users
Credit unions have been around for many years, but a renewed interest in their services was sparked during the Occupy Wall Street Movement in 2011, when activists urged the public to move their money from a large for profit bank to community banks.
Even after that social movement faded away, thousands heeded the call to transfer their money to credit unions, including during public events. During the 2011 “Move Your Money” national event, thousands closed their accounts with big banks in a single day.
For many, the tipping point came when Bank of America announced a $5 monthly fee for debit cards in 2011, especially after an outraged customer named Molly Katchpole launched a petition demanding an end to the fee.
The petition took off like wildfire, collecting 100,000 signatures a week after it was started. One month later the website petition had collected 300,000 signatures. Seeing the mass opposition to the fee, Bank of America reversed its decision, but the damage had already been done. Numerous customers jumped ship and made the switch to credit unions, at least 650,000, according to one estimate by Credit Union Magazine.
Strong growth since 2011 has pushed credit union membership to nearly 96 million across the U.S., according to National Credit Union Administration statistics from the nation’s 7,094 federally insured credit unions.
“I think to me it just shows the different philosophies. We are not here to get rich off the backs of our customers. We have different models, different structures the main difference is that we are member owned and have no shareholders,” Gentile said.
JP Morgan Chase and Wells Fargo followed suit by canceling similar plans for a debit card fee. It wasn’t enough to stop the tidal wave of people moving their money to community banks.
Those banks’ would-be fee amounts to the exact opposite experience offered at some credit unions, where customers are given a $5 bonus for using their credit union debit cards.
Mission Federal Credit Union in San Diego is rewarding members for using its debit cards, paying members 25 cents each time they use the credit union’s debit card, up to $5 during November and December.
“Mission Federal does not charge a monthly fee for debit card usage,” says Debra Schwartz, Mission Federals president and CEO. “With debit card fees top-of-mind right now, we intend to instead reward our customers up to $5 per month through year-end for using our debit cards, and invite others to experience the Mission Fed difference.”
Why don’t banks just become credit unions, passing along benefits to members? For Gentile, the answer boils down to profits and high-paying positions executive positions.
“If it is so great to be a credit union, why don’t banks convert to credit unions? We will help them convert and get our not-for-profit status. They don’t do it because they will have to give up high-paying board positions and unlimited commercial loans,” Gentile said.
Bank executives are among the highest-paid CEOs in the U.S. In 2012, JPMorgan Chase CEO James Dimon received $18,717,013 in total compensation, according to the AFL-CIO corporate paywatch. Last year, Bank of America CEO Brian T. Moynihan received $8,321,300 in total compensation, according to the same report.