WASHINGTON–The president emeritus of the Tax Foundation blasted the credit union tax exemption in an opinion piece in the Wall Street Journal, arguing CUs have “discarded their mission of serving people of modest means and have become profit-seeking enterprises masquerading as tax-exempt nonprofits.
In the opinion piece, Scott Hodge, who also serves as senior policy adviser to the Tax Foundation, which describes itself as a non-partisan think tank on tax policy, began by asking what employees of Legal Sea Foods at Reagan National Airport, Old Dominion Animal Health Center, the Carmen Group lobbying firm, and nearly 100 other businesses and associations have in common?
“They all can join the Congressional Federal Credit Union, which is ‘committed to helping the people who serve on Capitol Hill achieve their financial goals’,” wrote Hodge. “Legal Sea Foods is five miles from the Capitol. The closest its staff may get to ‘serving on Capitol Hill’ is when members of Congress pass through the terminal before flying home to their districts…”
‘Almost Meaningless’
According to Hodge, Congressional Federal Credit Union “illustrates how credit unions have stretched their common-bond and membership rules so far as to be almost meaningless.” He said credit unions have “earned the same scrutiny lawmakers have recently targeted at nonprofit hospitals and professional sports leagues.”
After outlining the history of the credit union tax exemption, including language in the 1998 Credit Union Membership Access Act that CUs have a “….specified mission of meeting the credit and savings needs of consumers, especially persons of modest means,” Hodge said today “Credit unions across the country are veering from that mission as they expand into new markets, merge with other credit unions, make sponsorship deals, and even buy commercial banks.”
‘Undermined’ the Image
While credit unions have “styled themselves as serving the underserved…they have undermined that supportive image by allowing almost anyone to be a member.”
As an example he cited PenFed, which is open to anyone, and its multi-million-dollar “brand takeover” of the Concourse C tunnel at Dulles International Airport.
“Perhaps PenFed is trying to reach underserved business travelers,” Hodge suggested.
“Credit unions have also undermined their nonprofit image by buying commercial banks. Such deals are legal but seem at odds with the mission to seek not profits but the underserved,” Hodge wrote. “Imagine your local YMCA expanding by acquiring the Gold’s Gym franchise down the street. But as one consultant wrote, “a bank acquisition can tick a lot of items off the wish list for credit unions looking to expand their product offerings and market share.”
Hodge alleged that in most cases credit unions acquiring banks are looking to expand into business lending, a strength of community banks, and that purchasing a local bank is the “fastest way to get into business lending.”
He pointed to the 16 credit unions in 2022 that announced plans to acquire banks and numerous such acquisitions in 2023, saying 60 such deals have taken place over the past decade.
‘Upscale Households’
“The clientele of credit unions increasingly consists of upscale households attracted to the lower interest rates credit unions claim to charge on credit cards and car loans and the higher rates paid on deposits,” Hodge wrote. “A 2022 academic study concluded that ‘most of the tax and non-profit subsidies enjoyed by credit unions are simply redistributions, passed through from taxpayers to credit union depositors in the form of higher interest payments’.”
In addition, Hodge cited another academic study he said found that “unbanked” or “underbanked” households were less likely to be members of credit unions, suggesting that “credit unions are not actually serving the needs of the underserved sector of society.”
‘Discarded Mission’
“It is clear that credit unions long ago discarded their mission of serving people of modest means and have become profit-seeking enterprises masquerading as tax-exempt nonprofits,” Hodge concluded.
Are You Being Gouged for Bank-Like Subscription Fees for Old News? Here’s a CU-Like Way to Fix That
The biggest, best and freshest news reporting in credit unions remains free! Each morning CUToday.info delivers its daily Fresh Today news update offering the latest headlines and breaking news right to your email, with the easy-to-read headlines format allowing you to click on the stories that interest you most in order to learn more. So stop paying those bank-fee-like subscription prices from other so-called “news”” publications!
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties, and we will not be contacting you to sell you an extended warranty or sending you any links so you may cash in on an inheritance you didn’t know was coming.
And did we mention it’s free?