Florida Bankers Association CEO Alex Sanchez wants to know why in the heck credit unions don’t have to pay taxes:
[W]hy doesn’t the Navy Federal Credit Union—with $60 billion in assets, 10,000 employees world-wide and five million members—pay state and federal corporate income taxes? Doing so would help to pay the salaries of the men and women who serve our country. It also would support the defense of the U.S., the needs of children and seniors, and help pay down the $18 trillion national debt.
For almost a century credit unions have been allowed to parade themselves as banks, offering identical services. Unlike banks, they pay no federal or state corporate income taxes. This loophole should be closed.
You’ll get no argument from me that there’s a place for credit unions in the financial system. CUs provide a worthwhile service that’s highly valued by their customers. They tend to get higher consumer satisfaction scores than banks do. Often they’re the best option for populations that traditional banks can’t or prefer not to try to reach. The problem is that the definition of the “common bond” that members of a given credit union are supposed to have has become so broad as to be meaningless. Thus many big credit unions have become sizable financial institutions that are indistinguishable from banks. More from Sanchez:
MidFlorida, the fifth largest credit union in the state—with $2.1 billion in assets—paid an undisclosed amount for the naming rights to an amphitheater in Tampa while developing some of the most lavish office spaces and branches throughout the state. MidFlorida began in 1954 as a small credit union for teachers and today serves approximately 200,000 members who “live, work, worship or attend school” in its Central Florida service area.
My rule of thumb: when you start paying out money to slap your name on a sports arena, you’ve completed your transition from high-minded, communitarian do-goodism to plain old capitalism. I wish MidFlorida well with its arena and its efforts to grow in its market. I just think it ought to pay taxes on its earnings the way the banks it competes against do.
There are plenty more MidFloridas in the credit union industry. CUs have made a clear, concerted effort to find ways to expand their potential customer base to include basically everyone in the country. Some have set up shell associations and charities that new customers can “join” by paying a token fee. (These rules may be changed.) Yet credit unions somehow don’t have to pay taxes or follow regulation, such as CRA, that for-profit banks do. For me, this isn’t so much about getting new revenues into the maw of the federal government. It’s about fairness. Banks are being forced to compete against CUs on a playing field that’s been significantly tiled in CUs’ favor. When credit unions were small and served tiny niche markets, that was fine. But now that many are turning into large multi-line institutions, they should be forced to play by the same rules banks do.
What do you think? Let me know!