February 13, 2012

Credit Unions Don’t Deserve A Bigger Tax Break

For a century now, credit unions have played a special role in providing financial services to communities.  Owned by their members, they serve people with a common bond or in the same geographical area.  Their mission is to help individuals and truly small businesses.

They also have a very special role in our tax system: None.  That’s right.  Credit unions are tax exempt.  They are treated as not-profits.  Contrary to banks, which pay corporate taxes regularly to the federal and state governments, credit unions do not pay any taxes.

There are limits on credit unions making too many commercial loans, veering from their mission.  In exchange for getting a free ride from Uncle Sam, credit unions are capped in the amount of loans they may make to small businesses.

But now the mega credit unions are trying to expand their lending turf, while maintaining tax-free status.  Less than 1% of all credit unions have reached the loan cap of 12.5% of assets (nor will they, since they cater to the consumer, not to businesses).  But the big ones have reached the cap and they are trying to get Congress to play along.

Congress shouldn’t.  These super-sized credit unions want the cap to be doubled.  But they don’t want to pay any taxes, even in this time of budget need.  Congress should not let these credit unions have it both ways.  If they want to keep their tax-exempt status, they need to keep their loan cap.

Why do I care?  Because credit unions don’t pay taxes, they have a competitive advantage over community banks in pricing loans.  Nor do they have to comply with the Community Reinvestment Act; they’re exempt under the law.  Fair is fair.  EagleBank will compete against anybody –anybody– but we should have a level playing field.

Credit unions are asking all their members to sign petitions and send letters to Congress.  I ask you to do the same on behalf of community banks.  Sign the petition or send a letter or email.  Whether the competition is a megabank or a mega credit union, EagleBank is at the forefront of loan pricing, customer service and community involvement.  But don’t put community banks like us at a disadvantage.  It’s in everyone’s best interest that community banks remain strong, and to remain strong, we must remain competitive.