Opinion Piece: "Tax-Free Credit Unions Are Thriving at Public Expense"

From Sheila Bair, writing in the Washington Post February 2, 2025

“Give them an inch and they’ll take a mile” is an old saying that critics of our tax system often apply to federal subsidies. In the case of credit unions, they have a point. Many have been abusing their nonprofit and tax-exempt status to expand beyond their mandate of serving low- and moderate-income communities with common bonds. I meet no such criteria, yet I will soon become the customer of a Massachusetts credit union that is using some of its untaxed income to buy my Maryland community bank. As the Trump administration searches for cost savings to address out-of-control budget deficits, it is time to reexamine credit union tax subsidies that cost taxpayers billions each year.

Credit unions have evolved dramatically since they were formed in the United States in the early 20th century. They have been exempted from federal taxes since 1934, when Congress chartered them as nonprofit institutions to serve households of modest means who fell within a specific “field of membership.” This might include working for a common employer or belonging to the same church.

. . . 

While credit unions are owned by their member depositors, these non-bank financial institutions are acting more and more like profit-seeking commercial entities. They generate additional capital by raising funds from Wall Street investors, such as hedge funds and private equity firms; purchase the naming rights for professional sports stadiums, including that of the Washington Commanders; and buy private planes for their executives.

They are also gobbling up taxpaying community banks, such as mine. Credit unions in 2024 announced a record number of acquisitions of community banks. These local banks contribute roughly $15 billion in tax revenue each year, revenue which is reduced each time a community bank is assumed by a credit union.

This raises questions of competitive fairness. And what of the impact on communities as their local community bank is swallowed up by remote, tax-exempt competitors? Community banks account for roughly 60 percent of U.S. small-business loans under $1 million and 80 percent of banking industry agriculture loans. What does a credit union 20 miles outside Boston know about the needs of our small, rural Eastern Shore communities nearly 400 miles away? These deals can have a substantial impact on local economies.

For prior Nonprofit Law Prof Blog coverage, see here.  

darryll k. jones