GREENSBORO, N.C. – At the end of 2003, North Carolina had 150 credit unions and 2.6 million members – almost 30% of the state's total population. But just how do consumers in this state that is also home to some of the largest U.S. banks, perceive the differences in benefits between belonging to a credit union and having a relationship with a bank? That was one of the questions a study conducted for the North Carolina Credit Union League by William Jackson, a former staffer with the Federal Reserve Board of Governors and currently a visiting researcher at the Federal Reserve Bank of Atlanta, was designed to answer. Along with that question, The Benefits of Credit Unions to North Carolina Consumers of Financial Services also looked into the benefits to commercial bank customers in the state because of competition from North Carolina CUs. Lastly the study which is based on sample data collected from 150 CUs and 130 banks that have operated in North Carolina since 2003, addresses the question of whether North Carolina SCCUs should have to pay a state income tax. Jackson concludes that North Carolina credit unions provide financial benefits to members in at least one of three ways: lower rates on loans (relative to available loan rates at other financial institutions); higher rates on deposits; or lower fees on specific financial products and services. From the data he collected, he estimates that the lower rates on loans at North Carolina CUs resulted in a direct financial benefit of $119.5 million to their members in 2003, and rates on used car loans provided about 50% of this benefit. Jackson's estimate for the financial benefit for North Carolina credit union members associated with higher rates on deposits in 2003 was more than $91 million, and about 45% of that was directly related to higher rates on money-market accounts. As for the three ways that North Carolina credit unions provided financial benefits to their members, the largest in 2003 was in lower fees – during 2003 members received a financial benefit of nearly $125.5 million as a result of the lower fees charged by their credit union for the same types of financial products and services provided by other financials. Of that savings, checking accounts – $90,320,000 – represented about 72% of that benefit. North Carolina credit unions provided their members an estimated $336,218,000 in financial benefits during 2003 which represents $129.80 per credit union member, or about $254 per member household. Jackson made it clear that, "The income tax exemption that credit unions experience is an important source of these benefits, but there are also other, very important sources of these benefits. And, these other sources appear to be directly related to the unique cooperative organizational structure that credit unions embrace." On the issue of whether North Carolina credit unions should have to pay a state income tax, Jackson questioned whether it is `good public policy" for the state to impose an income tax on SCCUs, and emphatically answered no. "I base my answer on the fundamental tenets of public policy analysis," he explained. "Specifically, I ask two questions about this taxation policy: The first question is whether arguments in support of the tax are theoretically sound or fundamentally flawed. I conclude that the arguments are fundamentally flawed because they are based on the premise that commercial banks and credit unions are the same. This is not true." As for Jackson's second question – "would the tax on credit unions effectively raise state revenues, or would the tax cause economic agents to (rationally) respond in such a manner that revenues would not be increased" – he stated that the answer to that question is "straightforward." He explained that, "A tax on North Carolina's state chartered credit unions (even the talk of such a tax) would result in many state-chartered credit unions switching to federal charters if the expected cost of the tax is larger than the conversion cost." Jackson said that would likely be the case for the larger state chartered credit unions. He continued that, "If these credit unions switch charters, the state of North Carolina would not only receive no new tax revenue from them, but the state would also lose the fees that these state chartered credit unions presently pay to their respective regulatory agency. "The state would also lose the sales tax that the converting credit unions would pay as state chartered credit unions, but because of their new federal charter status would no longer pay." North Carolina Credit Union League President/CEO John Radebaugh said the findings "affirm that as not-for-profit financial cooperatives, credit unions fill an important role in the financial services industry. Consumers are the real winners here, thanks to credit unions." -

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