The Credit Union Difference

The Value of Credit Unions

Credit Unions, as not-for-profit financial cooperatives, are fundamentally different from banks in many ways that benefit consumers. Because of these differences, Congress has exempted credit unions from paying federal income taxes.

The banking industry is challenging the credit union tax exemption, so consumers need to understand the value of credit unions and the importance of the tax exemption.

What’s the difference between credit unions and banks?

Credit Unions
• Owned by their members
• Focused on member service
• Not-for-profit cooperatives
• Must be eligible to join
• Earnings are returned to members
• Pay payroll, property and sales tax

Banks
• Owned by their stockholders
• Focused on generating profits
• For profit businesses
• Anyone can be a customer
• Profits are distributed to stockholders
• Pay federal income taxes, although many smaller banks are exempt

How do consumers benefit?

Credit Union members receive better rates and reduced fees. Bank customers also benefit because credit unions provide healthy competition that drives bank rates lower.

Why are Credit Unions tax-exempt?

In 1937 Congress exempted credit unions from federal income tax because of their unique structure and important role in the financial services industry. The tax exemption was reaffirmed in 1951 and again in 1998. Credit unions provide a valuable alternative to the for-profit banking system and continue to serve consumers who have no other access to financial services.

Could Credit Unions lose their tax exemption?

The banking industry is asking legislators to tax credit unions. They say the tax exemption gives credit unions an unfair advantage and hurts bank profits. If that were true, why are banks reporting record profits year after year? Clearly the credit union tax exemption has not affected bank profits and continues to help credit unions serve consumers well.

Why should Credit Unions remain tax-exempt?

The facts that convinced Congress to grant the tax exemption remain true today. However, if credit unions lose their tax-exempt status, they will have to pass along their tax payments in higher fees, higher loan rates and lower savings dividends to consumers, just like banks do. Ultimately a tax on credit unions is a tax on consumers.

Educating Consumers about Credit Unions is important.

It is vital to educate yourself, your family and friends about the Credit Union difference.