150x172 Exam Survey Promo
print

CUNA Tells Debt Commission Leaders:Consumers Will Pay Price if CUs Taxed

CUNA Tells Debt Commission Leaders: Consumers Will Pay Price if CUs Taxed

November 12, 2010

FOR IMMEDIATE RELEASE
Contact: Patrick Keefe
CUNA Communications, 202-508-6765
pkeefe@cuna.com


If credit unions lose their tax exemption – a possibility under options outlined by the president’s debt reduction commission – consumers will pay the price, CUNA has written to the co-chairs of the commission.

The options by the debt reduction commission were revealed earlier this week.

In a letter, CUNA President and CEO Bill Cheney told Alan Simpson and Erskine Bowles, co-chairs of the National Commission on Fiscal Responsibility and Reform, that credit unions provide significant financial benefits to their 92 million members, saving them about $7.5 billion a year, and that credit unions’ favorable pricing also helps to improve bank rates and moderate their fees.

“Yet faced with federal income tax liability, a number of credit unions may no longer feel compelled to operate a credit union and could close or convert to for-profit banks. These institutions have far different incentives than do credit unions and are driven by the desire to return a profit to shareholders rather than ensuring favorable rates are provided to consumers,” Cheney wrote

“With this outcome, consumers would have few, if any other mainstream financial choices than commercial banks, which often do not meet their financial needs well, as evidenced by a number of current problems in the economy,” he stated.

The complete text of Cheney’s letter to the commission co-chairs follows.
= = = = = = = = = = = = =
 

November 12, 2010

The Honorable Alan Simpson, Co-Chair
Mr. Erskine Bowles, Co-Chair
National Commission on Fiscal Responsibility and Reform
1650 Pennsylvania Ave NW
Washington, DC 20504

Dear Co-Chairmen Simpson and Bowles:

Undoubtedly you will be receiving numerous communications following the release of your draft proposal to reduce our nation’s debt.   In light of that, and the fact that we have already provided detailed information to the Commission in a communication dated August 31, 2010, this letter on behalf of the Credit Union National Association will be brief and focus on our key issues: ensuring policy makers understand both the value of the credit union tax exemption to consumers and to the U.S. economy.

I commend your efforts to present proposals to address our nation’s debt, and the objectives of your draft deserve serious consideration in a number of areas.   
Nonetheless, under the options you have outlined, the credit union tax exemption would be eliminated or could very likely be subject to elimination. 

Simply stated, if credit unions lose their tax exemption, consumers will pay the price. As the result of their tax exemption, credit unions provide significant financial benefits to their 92 million members, saving them about $7.5 billion a year. Credit unions’ favorable pricing also helps to improve bank rates and moderate their fees.  Yet faced with federal income tax liability, a number of credit unions may no longer feel compelled to operate a credit union and could close or convert to for-profit banks. These institutions have far different incentives than do credit unions and are driven by the desire to return a profit to shareholders rather than ensuring favorable rates are provided to consumers.  (One example is that during the current financial crisis, credit unions have continued to make loans while many banks have not.)

With this outcome, consumers would have few, if any other mainstream financial choices than commercial banks, which often do not meet their financial needs well, as evidenced by a number of current problems in the economy.  Even if a credit union chooses not to convert, it will inevitably be forced to raise lending rates and fees and lower its returns to its members/ accountholders.  Further, taxing credit unions would also divert funds that would otherwise be used to build capital and provide a cushion against any future losses, thereby protecting members and the National Credit Union Share Insurance Fund.

However, while these benefits to consumers and the economy would be forfeited, the returns to the U.S. Treasury would be relatively small.   The credit union tax exemption results in no more than $1.5 billion in lost federal revenue per year. However, revenues that might be provided to the Treasury if the credit union tax exemption were repealed will most certainly be lower, as a result of credit union conversions to banks or having to lower dividends to their members. Either way, the U.S. Treasury would not fully recapture the revenue. 

I realize a report such as yours must overcome many hurdles before it becomes policy. Yet, the demonstrable benefits to consumers of the credit union tax exemption should not be undermined at any step in the process as proposals to address the deficit are placed on the table.  Thank you for your attention to this very important matter to consumers and the credit unions on which they depend for financial services.      

Best regards,
Bill Cheney
President & CEO

150x172_Annual Report 2013Unite for Good Share your StoriesData-Breach-150x172.jpg