Credit Unions and Tax Exemption: Giving Credit Where Credit Is Due

As we ease into tax season, it’s important for consumers to know why some organizations are exempt from paying federal and state taxes. Recently, Robert Taylor, CEO of the Louisiana Bankers Association, issued his annual article questioning why credit unions are exempt from paying federal taxes. The answer is simple. Unlike banks, credit union earnings are returned to member owners, who are taxpayers themselves. These taxpayers already bear a substantial income tax burden. Therefore, taxing credit unions is an additional tax on 119 million Americans, including 1.2 million credit union members in Louisiana. 

In addition to the transactional experience credit unions provide their members, our mission is to work hand-in-hand with them to meet their financial needs and goals. Credit unions pass all profits to members in the form of a higher yield on savings, lower than average interest rates, fewer and lower fees as well as enhanced products and services. In fact, Louisiana credit unions provided $164,453,808 in direct financial benefits in 2019 for residents. If Louisiana banks were structured like credit unions, the $3.2 billion banks paid in stockholder dividends over the past decade would have, instead, been given directly back to Louisiana citizens. 

These stats make it easy to see the inherent value credit unions provide to the economy across Louisiana. It’s also worth noting that members of credit union Board of Directors are unpaid volunteers who offer their time and energy in hopes of seeing credit union members prosper and grow. Other financial institutions, including banks, are governed by investors who are compensated. Their earnings are divided among stockholders. Credit unions have no stockholders. For us, it’s always been people over profits.

In the article, Taylor also questions why credit unions are exempt from the Community Reinvestment Act, a law requiring banks to invest and serve their communities. Through their very structure and mission, credit unions invest in the communities they serve every single day. Additionally, credit unions offer a number of programs and initiatives aimed at improving financial literacy, funding education and improving the lives of individuals and small businesses across the state. 

Credit unions do not shy away from serving their members where they are most needed. Overall, 49 percent of U.S. credit union branches are located in CDFI investment areas which are geographic areas that often face a disadvantage such as high poverty or unemployment rates. Credit unions lead banks in this area with 59 percent of credit unions located in CDFI investment areas, compared to just 42 percent of U.S. banks.

Additionally, credit unions have been praised for their safety and soundness while big banks were having to be bailed out. In 2008, the rate of commercial bank failures was almost triple that of credit unions, with that rate increasing to almost five times more in 2010 (1.86% to 0.40% respectively).  

While credit unions have evolved with the changing financial landscape, we have always ensured our mantra was “people over profits.” Building personal relationships and maintaining exceptional service is our top priority. Credit unions are not just institutions, but dream fulfilment engines that lead to a first car, home or financing higher education aspirations. For this reason, public and policy makers should continue to recognize the value that credit unions provide. 

Bob Gallman | President/CEO, Louisiana Credit Union League