By Jason Stverak
The Independent Community Bankers of America (ICBA) recently published an article titled "Standing Up for Community Banking: A Call for Fairness in Credit Union Policies," which presents a mischaracterization of credit unions and their mission. While advocating for fairness is a noble cause, the ICBA’s arguments fail to acknowledge critical distinctions between credit unions and community banks.
Taxation: Subchapter S Banks vs. Credit Unions
The ICBA contends that credit unions benefit unfairly from their tax-exempt status, but this ignores tax advantages enjoyed by many community banks, especially Subchapter S (S-Corp) banks.
S-Corp banks, which make up a significant portion of community banks, are not taxed at the corporate level. Instead, their profits are passed through to individual shareholders, who pay taxes on those earnings. This structure eliminates double taxation and provides favorable tax treatment, amplified by the Tax Cuts and Jobs Act of 2017, which introduced a 20% deduction on pass-through income. A Government Accountability Office (GAO) report confirms that S-Corp banks often have effective tax rates significantly lower than traditional C-Corp banks.
Moreover, community banks benefit from mechanisms like accelerated depreciation, enabling them to reduce taxable income. These strategies, while legal, allow many banks to minimize tax liabilities, mirroring the financial advantages ICBA criticizes in credit unions.
Credit Union Tax Exemption
Credit unions, by contrast, are not-for-profit cooperatives that operate to serve their member-owners. Earnings are returned directly to members through lower loan rates, higher savings yields, and reduced fees. Their tax exemption reflects their historical and statutory mission to serve underserved communities—a mission that remains steadfast.
Claiming that credit unions unfairly exploit a tax loophole while ignoring S-Corp tax advantages presents a one-sided view. If fairness is the goal, let’s have a full and transparent conversation about tax equity across all financial institutions.
The Myth Of ‘Mission Creep’
ICBA alleges that credit unions have strayed from their original mission, but this argument ignores the evolving needs of the communities they serve.
Regulatory Oversight And Mission Compliance
Credit unions are subject to stringent oversight by the National Credit Union Administration, which enforces their statutory mission to prioritize member service over profit. The NCUA’s regulations continue to ensure credit unions remain focused on serving their members and maintain consumer protections.
Community-Centered Growth
The expansion of credit union services is not “mission creep” but a necessary adaptation to meet the changing needs of members. For example, military-focused credit unions serve mobile service members and veterans, providing affordable financial services regardless of location. Unlike many community banks, which prioritize shareholder returns, credit unions continue to focus on underserved and economically vulnerable populations.
Community Banks Selling To Credit Unions
The ICBA paints the acquisition of community banks by credit unions as predatory, but the reality tells a different story.
Preserving Community Access
When a community bank sells to a credit union, it is often credit unions that preserve local branches, retain staff, and ensure access to financial services. This benefits communities far more than acquisitions by larger, profit-driven banks, which frequently result in branch closures and reduced services.
Market Share Perspective
Credit unions collectively hold only 7% of the financial services market, compared to banks’ 93%. The suggestion that credit unions are dominating the industry is simply unfounded.
Misrepresentation of Polling Data
The ICBA’s use of polling data to support its position raises questions about transparency and methodology.
Contextual Bias
Were respondents informed of S-Corp tax advantages, or the benefits credit unions return to their members before answering questions about credit union taxation? Without this context, polling results are unlikely to reflect an informed public opinion. Framing questions to elicit specific responses does a disservice to genuine policy discussions.
Credit Unions’ Positive Impact On Communities
Credit unions do not undermine community banks; they complement them by filling gaps in financial services, particularly for underserved populations. Military families, veterans, and low-income individuals often rely on credit unions for access to affordable financial products and financial literacy programs that banks may not prioritize. Additionally, credit unions’ member-focused model benefits not just their members but the broader financial landscape by promoting competition and consumer choice.
A Call For Honest Dialogue
If the ICBA seeks fairness, it should address the tax advantages its members already enjoy and recognize the distinct missions of credit unions and community banks. Credit unions’ not-for-profit status, member-focused structure, and history of serving underserved communities distinguish them fundamentally from profit-driven banks.
Rather than perpetuating a narrative of conflict, let us work toward policies that acknowledge these differences and promote a financial system that serves all Americans. The Defense Credit Union Council, along with credit unions nationwide, remains committed to advocating for the financial well-being of members and fostering a constructive dialogue that prioritizes facts over rhetoric.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.
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