Letter to President Obama Responding to ABA on Importance of Preserving Credit Union Tax Exemption

June 24, 2013

The Honorable Barack H. Obama
President of the United States of America
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500

Re:  Importance of the Credit Union Tax Exemption to Consumers, Job Creation, and the American Economy

Dear Mr. President:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents the interests of our nation’s federal credit unions, I write today in response to the letter dated June 21, 2013, from Frank Keating of the American Bankers Association (ABA) recommending that the tax status of the credit union industry be reviewed.

In his letter, Mr. Keating asserts that the credit union federal corporate income tax exemption totals almost $10 billion over the next five years. A number nearly double the official estimate in your FY2013 Budget request to Congress of $6.13 billion over the five years 2013-17 and nearly triple the Joint Committee on Taxation’s estimate of $3.9 billion over that same period. In stark contrast, a recent independent study commissioned by NAFCU indicates that removing the credit union tax exemption would cost the federal government $15 billion in lost income tax revenue over the next 10 years, exceeding even the inflated assertion of Mr. Keating by about $300 million per year.  A copy of this study is enclosed.  These results match the findings of previous studies of the impact of eliminating the credit union tax exemption in Canada and Australia, where the number of credit unions was severely reduced following taxation.  Reduced competition for consumer financial services led to higher interest rates on consumer loans and lower interest rates on deposits in both countries.

We would also note that Mr. Keating failed to mention the fact that nearly one-third of banks are Subchapter S corporations and do not pay federal corporate income taxes themselves – a tax break worth billions to the bankers.  Furthermore, a report released by the Special Inspector General for the Troubled Asset Relief Program (TARP) found that out of the 332 banks participating in the small business lending fund program run by the Treasury Department, 137 of these banks used more than half of about $4 billion disbursed by the program to help fund their exits from the TARP, with one community banker describing it as “…a bit of a shell game.” (“Tale of Two Loan Programs,” The Wall Street Journal, October 20, 2011).

The federal corporate income tax exemption is an issue of survival for credit unions.  Any effort to strip credit unions of their federal corporate tax exemption will have a drastic and immediate negative impact on credit unions and their 95 million members, as well as the more than 5.5 million current and former servicemembers and their families and survivors. As noted by The Military Coalition, any change in the credit union tax exemption “…would be to the detriment of our armed forces members and their families and, in the long term, to military readiness.”  (A copy of The Military Coalition’s letter of January 3, 2013 to this effect is attached).

While all financial institutions have grown since the passage of the Federal Credit Union Act in 1934, it should be noted that the credit union market share of household financial assets is roughly the same today as it was 30 years ago.  The defining characteristics of credit unions remain unchanged today from when credit unions gained their tax exemption – they are not-for-profit cooperatives that serve a defined field of membership and cannot issue capital stock.  These defining characteristics are the same for both the largest credit union and the smallest credit union.

Furthermore, while many in the banking industry claim that credit unions have such an unfair advantage, I must point out that only two (2) banks have converted to a credit union in recent years, while 33 credit unions have converted to a bank in the last 15 years.

We thank you for your support of credit unions and look forward to working with you on issues of importance to the American economy. If my colleagues or I can be of assistance to you, or if you have any questions regarding this issue, please feel free to contact me or NAFCU’s Vice President of Legislative Affairs, Brad Thaler, at (703) 842-2204.


Fred R. Becker, Jr.

President and CEO

cc:        The Honorable Jacob J. Lew, Secretary of the Treasury

The Honorable Gene B. Sperling, Director, National Economic Council

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