Credit Unions

What’s the issue?

Currently, credit unions are exempt from federal income taxes.  

Credit unions were granted tax-exempt status with the understanding they would use their tax savings to provide basic banking services to specific customer segments, for example, low- and middle-income members who share a common bond through an employer, church, school, or community.

How does this affect your community?

Since 1934, when their tax-exemption was enacted at the peak of the Great Depression, many credit unions have continuously evolved beyond their original missions. They have managed to expand their fields of membership and market from financially underserved individuals and vulnerable communities to largely affluent populations. 

Today, credit unions are less likely to serve lower-income households than banks. They are not held accountable for their contributions to the communities they serve.

Only 7% of credit union branches are located in low-income communities. During the COVID-19 pandemic, credit unions processed only  3% of Paycheck Protection Payment loans meant to help small businesses and local economies stay afloat.

Instead of focusing on providing financial services to low-income consumers in vulnerable communities, large credit unions have used their tax-exempt advantage to purchase smaller tax-paying community banks across the country. This harms local governments that depend on federal, state, or local income taxes. Every bank acquired by a credit union results in a tax revenue reduction that could be used to fund and invest in opportunities and essential services that lead to community development and growth.

What can policymakers do?

Policymakers should ensure credit unions return to their original mandate to serve the financially underserved and vulnerable communities. If credit unions continue to deviate from their original mission, Congress should reexamine and reform credit unions, so they are subject to the same regulatory, supervisory and tax requirements as other financial service providers.