The Credit Union Triple Threat

By Culberson, James M., Jr. | ABA Banking Journal, March 1996 | Go to article overview

The Credit Union Triple Threat


Culberson, James M., Jr., ABA Banking Journal


As most any community banker will tell you--certainly this community banker will--it's tough to compete against the credit unions. First, they pay no federal income taxes. Second, many credit unions long ago stopped adhering to a "common bond." Finally, many credit unions are highly diversified, growth-oriented institutions. Credit unions are a real triple threat.

First, and foremost in the minds of many bankers, there's the tax exemption. Once again, this year, the credit unions won't be joining the rest of us in paying our federal income taxes. Yet at mid-year 1995, they'd already made $1.7 billion in profits. How will you feel on April 15, after paying your taxes, knowing that the credit unions once again haven't paid a dime?

Estimates are that the government is losing one billion dollars a year in lost tax income as a result. With a national debate going on in Washington over budgets and budget deficits, $1 billion ought to be of some help. The ABA estimates the tax exemption for credit unions will add nearly $6 billion to the federal deficit between 1994 and 2000.

By the way, banks are paying their federal income taxes, and quite a lot. Since 1991, U.S. commercial banks and trust companies have paid over $80 billion in federal income tax. Credit unions, of course, have paid zero. Then there is the common bond. ABA and a number of state bankers associations have sought to work through the courts to force credit unions to adhere to the common bond, in accordance with credit unions' original chartering. The case I'm most familiar with--because it's my bank--is First National Bank & Trust Co. v. National Credit Union Administration. We joined ABA and other community banks in the state to sue the credit union regulator, charging that NCUA's approval of additional "select employee groups" to the field of membership of AT&T Family Federal Credit Union in North Carolina violated the common bond. The AT&T credit union's members include employees at a tire company, a battery manufacturer, a food and soft-drink company, a yarn company in California and many other groups. Two-thirds of the credit union's members have nothing to do with the original employee group. Courts move slowly, however. The case is unresolved, though we filed the suit in 1990.

As if the tax exemption and the disappearing common bond weren't enough, some credit unions have moved aggressively to grow and diversify. The AT&T Family Federal Credit Union named in the suit continues to solicit employee groups even now. …

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