Taxpayers should no longer subsidize the nation’s largest credit unions that operate effectively the same way as taxpaying banks, all 52 state bankers associations said in a letter to Sen. Orrin Hatch (R-Utah) today. The letter came after Hatch last month raised concerns to the National Credit Union Administration about whether credit union activities — and the NCUA’s supervisory agenda — align with the purposes of the tax exemption they enjoy
While the credit union tax exemption was originally created to help institutions meet the credit needs of customers in their local communities, the industry today has stretched the “common bond” requirements to allow credit unions to serve large, multistate regions, the associations said. They also pointed out that the number of credit unions with more than $1 billion in assets has more than doubled in the past decade, and that this group of almost 300 credit unions represents just 5 percent of the industry but enjoys 75 percent of the tax subsidy. Noting that Congress missed a critical opportunity to address the treatment of credit unions in the new tax reform law, they urged Hatch — the top tax policymaker in the Senate — to revisit the tax exemption this year.
“There is no reason why the largest credit unions, which act and look just like the taxpaying banks they compete with, should be completely free of income taxation,” the associations wrote. “This creates a market distortion where the tax code effectively subsidizes one financial services entity (the largest credit unions) over another (the smaller community bank).”
The associations also highlighted a recent study by the Tax Foundation which found that few of the benefits from the tax exemption are passed onto credit union customers. Instead, some of the largest credit unions have recently used their tax benefit to finance executive compensation packages, build or buy multi-million dollar headquarters facilities and purchase naming rights to stadiums and bowl games.