The pros of a federal credit union charter

In most states, credit unions have a choice of operating with a state or federal charter. There are a number of considerations in determining which charter is more advantageous.  This is an overview of some of the more important considerations.

Federal Share Insurance

All federal credit unions (FCUs) have federal insurance coverage on their member share accounts, backed by the full faith and credit of the U.S. government.  Most state credit unions (SCUs) have this coverage as well, but as of 2017 there were 9 states that authorized private share insurance, which is not backed by the government.  SCUs and their members should be aware of the nature and scope of their insurance protection.

One vs. Two Regulators

Federal credit unions have only one primary regulator and insurer, the National Credit Union Administration (NCUA).  SCUs with federal share insurance are subject to regulation and examination by both their state regulator and the NCUA.

Credit Union Taxation

The FCU Act exempts FCUs from all federal and state taxation, with the exception of certain property taxes.  Federal law exempts SCUs from federal income tax, but not from any state taxes.  The extent to which SCUS are subject to taxes under state law will vary from state to state and must be considered in each state where an SCU operates.  SCUs have also faced issues with over the years with respect to federal taxation of “unrelated business income,” although up to now those issues have largely been resolved in favor of SCUs.

 

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