DCUC Letter to U.S. Senate Finance Committee Opposing Threats to Credit Union Tax-Exempt Status
On Monday, September 9, 2024, the Defense Credit Union Council (DCUC) sent a letter to the U.S. Senate Committee on Finance ahead of the upcoming hearing titled “The 2025 Tax Policy Debate and Tax Avoidance Strategies,” scheduled for September 12, 2024. Addressed to the Honorable Ron Wyden (D-OR), Chairman, and the Honorable Mike Crapo (R-ID), Ranking Member, DCUC’s letter voiced it’s strong opposition to any policy proposals that would jeopardize the longstanding tax-exempt status of credit unions.
In its letter, DCUC emphasized that credit unions’ nonprofit, tax-exempt status reflects their member-centric mission and distinct role in the financial services landscape. "The longstanding tax-exempt status of credit unions reflects their unique structure and mission to provide financial services to their members, not to generate profit," stated Jason Stverak, DCUC Chief Advocacy Officer. “Removing this status would have severe consequences for credit unions, their members, and the communities they serve."
DCUC highlighted how credit unions’ unique structure and founding mission fundamentally distinguishes them from for-profit financial institutions. "Credit unions are member-owned, meaning that every member is a partial owner with equal voting rights, regardless of their account balance. This model aligns credit unions directly with the needs of their members, as there are no outside shareholders to serve or profits to maximize."
The Council shared how defense credit unions provide crucial financial services, particularly to military personnel, veterans, and their families, such as lower loan rates, higher savings dividends, and fewer fees compared to banks. DCUC further noted how credit unions offer the kind of personalized service and stability that larger, for-profit institutions often fail to provide military families, many of whom are deployed overseas or frequently relocated.
DCUC provided a historic rationale for maintaining credit unions’ tax-exempt status, explaining, "The tax-exempt status of credit unions is not a subsidy or a loophole; rather, it is a recognition of their cooperative nature and their role in promoting financial inclusion and community development. Since their inception in the 1930s, credit unions have been exempt from federal income taxes because they operate for the benefit of their members, not shareholders. This tax-exempt status allows credit unions to return profits directly to their members in the form of better rates and lower fees.”
DCUC continued, sharing, "In 1998, Congress reaffirmed the tax-exempt status of credit unions with the passage of the Credit Union Membership Access Act (CUMAA), which recognized the important role credit unions play in providing access to financial services for individuals and communities that might otherwise be underserved. The not-for-profit, member-owned structure of credit unions has not changed since that time, and the rationale for their tax exemption remains as valid today as it was decades ago.”
Additionally, DCUC’s letter warned of the potential negative impacts of removing the tax exemption, stressing that such a move would force credit unions to divert resources away from member benefits, leading to higher fees, reduced loan accessibility, and diminished service offerings. Eliminating the tax-exempt status would disproportionately affect military families and underserved communities, which are heavily reliant on the personalized services credit unions provide.
DCUC also highlighted the significant regulatory oversight already in place for credit unions, including stringent capital requirements and reporting mandates, stating that adding a tax burden would only exacerbate these challenges. "This is particularly concerning for smaller, community-based credit unions, many of which operate on tight margins and would be disproportionately affected by such a change."
The Council pointed to the unfair comparisons of credit unions to banks, especially in regard to taxing, and how some proponents of taxing credit unions argue if banks pay taxes, credit unions should as well. “[T]his argument overlooks the fundamental differences between the two types of institutions. Banks are for-profit entities that exist to generate returns for shareholders, whereas credit unions exist solely to serve their members. Taxing credit unions as though they were for-profit entities would ignore the public benefit they provide and the cooperative nature that sets them apart from banks.”
DCUC noted how banks, despite their for-profit nature, have access to numerous tax breaks and subsidies which are not available to credit unions, including “favorable tax treatment for certain financial products and deductions for executive compensation and other expenses. Eliminating credit unions’ tax-exempt status while leaving these bank subsidies intact would create an uneven playing field, placing credit unions at a significant disadvantage."
DCUC concluded its letter by reiterating the unique role defense credit unions play in supporting military families and the broader community. "Credit unions have a proud tradition of serving those who serve our country, and their continued ability to do so depends on the preservation of their tax-exempt status."
DCUC remains committed to working with members of Congress and the Senate to protect the tax-exempt status of credit unions and to ensure their continued ability to serve military families, veterans, and underserved communities stateside and abroad.
