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WASHINGTON-Responding to attacks by the American Bankers Association and America’s Community Bankers, CUNA has filed a response with the President’s Advisory Panel on Federal Tax Reform. CUNA’s written remarks stated that the credit union tax exemption is “sound public policy and urges the Advisory Panel to reaffirm this conclusion.” Expanding fields of membership and services are some of the reasons the bankers stated for revoking credit unions’ tax-exempt status. According to CUNA, “Since inception, credit unions’ tax exemption has had absolutely nothing to do with either field of membership restrictions or the extent to which credit union service offerings were limited. Rather, the original reasons for the tax exemption have had everything to do with the cooperative structure of credit unions.” The credit union trade association continued, “Today, credit unions continue to operate as democratically controlled mutual institutions, serving their members on a non-profit basis. Rather than distributing net income among stockholders (as do banks), the bulk of it is returned to members in lower loan rates and fees, or higher yields on savings.” CUNA pointed out that Congress reaffirmed credit unions’ tax treatment in the findings to the Credit Union Membership Access Act. Additionally, credit unions continue to serve those of modest means. CUNA cited a recent Filene Research Institute report, which found that `bank only’ households had higher income levels than `credit union only’ households, and that households that `primarily’ use a bank have higher median incomes than those `primarily’ using credit unions. One of the values of credit unions is their pricing of services. “Numerous studies and reports show that credit unions charge fewer and lower fees than do banks for the same kinds of services,” CUNA wrote. For example, credit union minimum balances to avoid fees are typically lower than at banks and credit unions typically offer lower rates on loans, especially on used cars and small loans. Nearly half of credit union business loans (45%) go to borrowers with household incomes below $50,000, according to Treasury, and Home Mortgage Disclosure Act data shows that low-income and minority applicants are “significantly more likely” to get approved by a credit union than any other lender. “Throughout most of their history, credit unions have actually been hamstrung in their efforts to serve members of modest means because field of membership rules generally restricted eligibility to occupational groups,” CUNA pointed out. Now, through NCUA’s Access Across America, credit unions have been able to expand their reach to over 92 million potential members in underserved areas. Credit unions that have taken that path have experienced membership growth over three times that of other credit unions (17.4% vs. 5.2% over the three year period), CUNA stated. CUNA has estimated that credit union members save more than $6 billion a year by bringing their business to a credit union. “That is about four times the roughly $1.5 billion that credit unions would pay in federal income tax,” CUNA’s comments highlighted. And the tax exemption encourages credit unions to remain with the charter. In rebuttal to bankers’ complaints that large credit unions should be taxed because they compete with for-profit institutions, CUNA said, size does and does not matter; it does not matter because even the largest credit union is democratically controlled and not-for-profit, but it does matter because larger credit unions are better able to provide certain services, including to those of modest means. “There is no relation between the size of an institution and the absence or presence of reasons to justify the tax exemption,” CUNA wrote. “Large credit unions are democratically controlled, not-for-profit cooperatives in every way that smaller credit unions are.A large credit union may be more likely to offer a broader array of services, and to be a greater presence in a local market. But neither activity makes it less a cooperative than a smaller credit union. No one suggests that as soon as the congregation of a church, synagogue or mosque exceeds a certain size, it should no longer be tax exempt.” Additionally, the size and efficiency of large credit unions often permits them to offer lower rates and fees and make more programs available for low- to moderate-income households. Finally, CUNA argued, there is no evidence of market disruptions due to the credit union tax exemption. The group pointed out that banks posted record profits for the fourth year running, according to the Federal Deposit Insurance Corporation. Banks’ aggregate return on assets has averaged 1.23% over the past 12 years. “And credit unions are only growing marginally faster than banks,” CUNA said. “In the decade ending in 2004, total banking institution assets grew at a compound annual rate of 7.25% compared to 8.4% for credit unions. Credit unions now account for 6.2% of the combined assets of all depository institutions. At the growth rates of the past decade, it will take until the year 2053 for the credit union share to climb to just 10%.” [email protected]

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