By Jason Stverak
The alleged embezzlement at Jackson Area Federal Credit Union represents a profound breach of trust. Any theft from a member-owned financial institution deserves thorough investigation, prosecution, and full accountability. Bad actors should be removed, prosecuted where appropriate, barred from financial services, and forced to repay every recoverable dollar.
The National Credit Union Administration placed Jackson Area Federal Credit Union into conservatorship on May 6, 2026, citing unsafe and unsound practices; NCUA said services would continue, deposits would remain protected, and the credit union had 15,561 members and reported assets of $162,360,956.
NCUA’s 2026 supervisory priorities direct examiners to review fraud prevention, internal controls, separation of duties, and insider-abuse risks.
However, the Independent Community Bankers of America (ICBA) is using this case to renew demands that federal credit unions file Form 990s, attack the federal credit union tax status, and prompt policymakers to reexamine whether credit unions continue to fulfill the mission Congress envisioned.
Federal credit unions are tax-exempt under section 501(c)(1) of the Internal Revenue Code, with the IRS and Congress repeatedly having recognized this distinction. Revenue Ruling 60-169 states that “Federal Credit Unions organized and operated in accordance with the Federal Credit Union Act are recognized as instrumentalities of the United States within the meaning of Section 501(c)(1) of the Code.”
The Federal Credit Union Act, enacted in 1934, established federal credit unions as cooperative associations designed “to promote thrift among their members and create a source of credit for provident or productive purposes.”
Congress reaffirmed this structure when it enacted legislation explicitly recognizing the federal income tax exemption in 1937. Lawmakers focused on the cooperative nature of credit unions, institutions owned by and operated for their members, rather than size, products or market share.
Policy Revisited
Congress has revisited credit union policy multiple times, including through the Credit Union Membership Access Act of 1998 and the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. In none of these instances did Congress decidedly alter the credit union structure or tax treatment.
Unlike investor-owned banks, credit unions do not have shareholders who absorb reductions in profits. Credit unions return earnings to members through lower loan rates, higher savings yields, reduced fees and expanded services. If credit unions were required to pay corporate income taxes, the cost would not disappear. It would likely be reflected in fewer resources available for members.
Potential impacts include:
• Higher borrowing costs
• Lower savings and certificate rates
• Increased fees
• Reduced technology and cybersecurity investments
• Fewer branch expansions
• Less lending capacity during economic downturns
Research published in the Journal of Financial Stability found that much of the economic benefit associated with the credit union tax exemption (90%) flows directly to members through improved pricing and consumer benefits.
Federal credit unions operate within a comprehensive regulatory environment. They are chartered, supervised, and insured by the NCUA, and subject to ongoing safety-and-soundness examinations, quarterly Call Report requirements, capital standards, board and supervisory committee oversight, independent audits where applicable, and corrective action requirements when deficiencies are identified.
NCUA uses this regulatory framework to evaluate financial condition, governance, compliance, risk management and operational safety. The agency also maintains extensive publicly available information on federally insured credit unions, including financial performance data and regulatory filings through its Credit Union and Corporate Call Report Information System.
The existence of regulatory recommendations does not mean oversight is absent. Rather, it reflects the continuous improvement process expected of any federal financial regulator. The NCUA has continued to enhance data collection, reporting requirements and transparency initiatives while maintaining one of the most comprehensive supervisory frameworks in the financial services sector.
This regulatory framework provides regulators with detailed operational and financial information specifically designed for prudential oversight, information that extends far beyond the purpose and scope of an IRS Form 990.
Serious About Transparency?
If policymakers want a serious conversation about transparency, governance, and supervision, credit unions should be at the table. But Form 990 is not a magic fraud detector, and one alleged criminal scheme is not an indictment of the cooperative model.
The Association of Certified Fraud Examiners (ACFE) has repeatedly found that occupational fraud is commonly detected through tips, internal controls and effective oversight, not public tax filings. Weak internal controls, lack of management review and the ability to override established safeguards remain among the leading contributors to fraud. The appropriate response is stronger governance, improved internal controls, enhanced supervisory practices and effective enforcement, not assuming that a different tax form would have prevented criminal conduct.
Before bankers cast stones, they should look at the glass house around them. Credit unions have had failures, fraud, weak controls, and board lapses. But credit unions did not crash the housing market or produce the 2023 regional bank failures.
The Financial Crisis Inquiry Commission concluded that the 2008 crisis was avoidable and cited failures in regulation, corporate governance, risk-taking, and accountability. Afterward, Bank of America agreed to a $16.65 billion Justice Department settlement over mortgage-related conduct, JPMorgan Chase agreed to a $13 billion settlement over toxic mortgage securities, and NCUA recovered more than $5.1 billion from Wall Street firms that sold faulty mortgage-backed securities to failed corporate credit unions.
Nor is this ancient history. In 2023, Silicon Valley Bank, Signature Bank, First Republic Bank, and Heartland Tri-State Bank failed. These were banks, not credit unions. FDIC estimated Deposit Insurance Fund costs of $16.1 billion for Silicon Valley Bank, $2.4 billion for Signature Bank, and about $13 billion for First Republic Bank. The Federal Reserve’s SVB review called that failure a “textbook case of mismanagement,” citing failures by senior leadership, the board, and supervisors.
Silvergate did not fail through FDIC receivership. But the Federal Reserve OIG found that crypto-industry concentration, rapid growth, funding risks, and governance and risk-management weaknesses led to its voluntary liquidation.
Misconduct is not confined to Wall Street or crypto-focused banks. The former CEO of Heartland Tri-State Bank was sentenced to 293 months in prison after embezzling tens of millions of dollars in a cryptocurrency scheme; DOJ said he initiated 11 wire transfers totaling $47.1 million, the FDIC absorbed that loss, and his fraud caused the bank to fail.
Pulaski Savings Bank in Chicago is another example the banking lobby would rather not discuss. Illinois regulators closed Pulaski on January 17, 2025, and appointed the FDIC receiver; FDIC said Pulaski had reported $49.5 million in assets and $42.7 million in deposits, estimated a $28.5 million cost to the Deposit Insurance Fund, and said suspected fraud caused the higher cost.
FDIC OIG later reported a $28,449,000 estimated loss, equal to 62% of assets. Its in-depth review found at least $20.7 million in deposit liabilities outside Pulaski’s core financial system, management weaknesses since 2017, MOUs in 2017, 2020, and 2023, and a 2023 management downgrade partly tied to key-person risk.
Pulaski was not operating in a disclosure desert. FDIC-insured institutions file Call Reports through the federal banking agencies’ reporting system. Yet those filings did not prevent Pulaski’s off-core deposit problem or a loss equal to most of the bank’s assets.
And then there is Wells Fargo. CFPB ordered Wells Fargo to pay more than $2 billion in consumer redress and a $1.7 billion civil penalty for violations affecting more than 16 million consumer accounts. Again: not a credit union.
None of these excuse what allegedly happened at Jackson Area Federal Credit Union. They do, however, put the banking lobby’s sudden moral outrage in perspective.
The Path Forward Requires Accountability, Not Abandoning A Proven Model
The ICBA’s argument does not establish that Form 990 would have uncovered sophisticated accounting fraud. It does not establish that the federal credit union tax exemption caused the misconduct. And it does not establish that taxing member-owned financial cooperatives would improve accountability.
The actions of one individual cannot erase the contributions of more than 4,000 federally insured credit unions serving more than 145.8 million members.
The question before policymakers is not whether credit unions should be held accountable. They should and are. Investigate Jackson Area Federal Credit Union. Recover funds. Hold individuals accountable. Fix every failure point. But do not let banks use one credit union scandal to distract from their own record. Credit unions should answer for their mistakes. Banks should answer for theirs. Policymakers should not let the industry that has repeatedly shaken the American economy lecture member-owned cooperatives as though it has clean hands.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.