ECONorthwest’s newly released scientific study refuted bank complaints surrounding credit union tax-exempt status.
For years banks have lobbied Washington to have credit union tax-exempt status removed, saying that it provided credit unions with an unfair competitive advantage. Despite arguments from the credit union industry, banks have persisted in trying to have the designation abolished.
However, data analysis provided through a first-of-its-kind economic study by ECONorthwest, discovered that having a tax exempt status does not provide credit unions with a competitive advantage and also helps those of modest means obtain a savings and loan vehicle they would have no access to otherwise.
ECONorthwest is an independent economics, planning and financial consultant that serves a wide variety of clients in both the private and public sector. The Northwest Credit Union Association (NWCUA) commissioned the group to evaluate national commercial bank and credit union data from 1948 through 2012 in addition to data from Oregon and Washington from 1995 through 2012.
Economists from ECONorthwest applied mathematical analysis to test the theory fronted by bankers that tax exemption gave credit unions a leg up on the competition.
The team issued a report, “Credit Unions vs. Banks: The Myth of the Uneven Playing Field,” that provided several examples and reasons why maintaining a tax exempt status is vital to delivering a valuable service to the underserved market.
In a press release, NWCUA highlighted some of the most significant findings, which included:
- Credit unions’ cooperative management model allows them to provide superior deposit and loan rates and greater protection from risk relative to investor-owned banks.
- Trend analysis shows commercial banks continue to dominate the financial services market in deposit and asset shares; credit unions’ tax structure has not positioned them to harm banks’ market share.
- Consolidation of smaller credit unions was historically a response to the risk and operational inefficiencies of small scale and not driven by tax policy.
- Credit unions are continuing to serve Americans with modest savings, with the share of small accounts declining much more slowly than at commercial banks. Credit unions hold a smaller share of large accounts than commercial banks. Commercial banks’ share of accounts over $100,000 is 240% higher than credit unions’ share.
- Credit union staff is paid less in salary and bonuses per employee than commercial banks, consistent with cooperatives’ focus on maximizing member benefits.
How Will The Report Be Used?
Credit Unions Online reached out to Troy Stang, NWCUA’s president and CEO who said that the economic report will be used in a number of ways. “It's important for more than 94 million credit union members nationwide to know that not only do they personally benefit from membership but that the cooperative choice is good for the economy as well,” he explained. “It demonstrates that for decades credit unions have delivered real, tangible value for consumers through a cooperative model. Because the economists did such a high level data-test, there is absolutely no argument for eliminating credit unions' corporate tax structure. That tax model doesn't give credit unions an unfair competitive advantage as the bank lobby claims, and the study proves it. It is time for the banks to focus more on serving their own customers, like credit unions have wired into their DNA do every day. The relevance of the report to Congress' current work on comprehensive tax reform makes it an excellent, factual resource and we do plan to share it.”
Although the report points to unbiased data analysis, is it possible to quell bankers’ shouts that the credit union industry isn’t playing fairly?
“The bottom line is this: some individuals and organizations in the for-profit banking industry want nothing more than to eliminate any competitive forces in the marketplace,” Stang says. “The division within the for-profit banking segment is growing more obvious every day. The large national bank brands are capturing market share while their systemic issues (too big to fail, bail, jail) dominate the headlines.”
He adds, “At the same time, the big banks are leveraging their membership in trade associations to distract important public policy decision-making on their tired arguments against the not-for-profit charter choice. I believe some banking organizations will always fight the millions of consumers who've chosen credit unions because those organizations haven’t really figured out how to help banks serve their own customers. They hang their hat on that argument versus supporting causes to advance beneficial choices for the consumer. They turn their vitriol to us. I encourage the leadership within the for-profit banking environment to have the courage to read the economic study. I believe they will find that the information that's been fed to them by their trade associations over the years is in fact just rhetoric.”
Do you believe the new report will lend fact and credibility to the ongoing argument? Ask your local credit union for more information about the ongoing battle.