Former American Bankers Association Chair Laurie Stewart today called for policymakers to revisit the credit union tax exemption, which is estimated by Treasury to total nearly $25 billion in lost revenue by 2031. Stewart—who is president and CEO of Sound Community Bank in Seattle—emphasized that while there are still “some very small, quintessential credit unions that are operating as designed,” the majority of credit unions “have graduated to be banks” and should be taxed accordingly.
Stewart recounted her own experience in converting her institution from a credit union to a bank—which it did as part of a strategy to offer products and services to the community that were at the time beyond the scope of credit union activities. Originally, the institution was sponsored by a cooperative grocery wholesaler, and its clients shared a common bond—a key element of the credit union charter. However, Stewart noted that for her institution and many others, those dynamics changed over time, and today, many tax-advantaged credit unions compete directly with taxpaying banks.
“As that common bond goes away and we’re all doing business in the same environment, [if]credit unions are cultivating the same customers that [banks are]cultivating—and in fact more affluent customers in many cases—then we don’t have that ability, that unique field-of-membership, common bond that supported the tax deduction,” Stewart said. “I would encourage Congress to shine a light on the entire industry and really understand what credit unions are doing, at what levels, when they look like banks, when they don’t look like banks and then move to a rational form of taxation, leaving a not-for-profit exemption for true non-for-profits.”