David vs. Goliath?
Banks Continue Attacks on Credit Unions

The banking industry is still waging its years-long battle to try and persuade Congress to repeal credit unions' income-tax-exempt status. Bankers claim the tax exemption creates an unfair competitive advantage for credit unions.

But banks reported record-high profits – $38 billion – for the second quarter of 2006. And that was the fifth time in the past six quarters that their earnings have set a new record. The record earnings make it difficult to understand why banks claim that Congress must act to “level the playing field.”

In general, banks seek to increase their profits by maximizing the amount of money they collect from customers, and minimizing the amount they pay out in interest. Credit unions, on the other hand, exist to serve their members. They are not-for-profit, cooperative organizations set up to work for people, not profit. A credit union is owned by its members and directed by a volunteer board of directors elected by the membership. It returns its earnings to members by lending money at lower rates, paying higher dividends on savings, charging fewer and smaller fees, and offering convenient services.

Size Isn't the Issue
Bankers also contend that credit unions have grown too large. As of June 30, 2006, banks had total assets of $11.5 trillion. In contrast, credit unions' total assets were $697 billion.* In other words, credit unions make up a 6% share of the market; banks are about 17 times bigger.

Congress voted in 1937 to exempt credit unions from federal income taxes because they are non-profit, mutually owned, democratically controlled institutions. The tax exemption was reviewed and reaffirmed by Congress in 1951, then again in 1998. The reasons to maintain the tax exemption remain as true today as when Congress originally voted on it 70 years ago.