When you think of credit unions, you probably think of a community-oriented financial institution with a handful of branches dotting your town. You may think of them as a place where folks who work at the same factory or teach in the same school system can get a car loan or put money aside in a Christmas club account.
That Rockwellian notion of credit unions, however, has become shockingly obsolete.
While some credit unions remain small and local, a growing number of them have become billion-dollar behemoths, skirting the tax man by exploiting IRS rules made for small credit unions of yesteryear.
During the Great Depression, Congress promoted savings and small loans by allowing credit unions to form tax-free to assist struggling Americans who weren’t served by banks.
These days, credit unions and banks perform the exact same functions for their customers; offering services such as checking accounts, credit cards, online banking and loans. The only real differences are that credit unions are member-owned and they still don’t have to pay federal income taxes — not a single dime.
That might sound reasonable for a tiny little credit union with a couple thousand members, but there are now 281 credit unions with more than $1 billion in assets. Each of these billion-dollar credit unions is larger than 9 out of 10 banks in America.
The effective tax rate on a small local bank is about 29.2 percent, according to the Stern School of Business at New York University. While a mom and pop bank gives nearly a third of its revenue to government for things like schools, roads, healthcare and our military, the huge credit union across the street is allowed to keep every dollar it makes for itself.
And what they do with all that money is astounding.
Rather than lowering fees for working-class members, credit unions oftentimes fritter money away on excessive salaries, ridiculous marketing ploys and subsidizing opulent purchases for the rich.
Being a credit union chief executive officer is a good gig, if you can get it. The Denver Post discovered the CEO of the Colorado-based Public Service Credit Union pocketed $11 million in 2010 alone. No wonder the credit union charges its members more than $10 million in fees every year.
The CEO of the Delta Community Credit Union in Georgia collects $1.2 million a year in compensation, another $1.1 million goes to the head of the Tampa-based Suncoast Credit Union. In Washington state, even the head of the Spokane Teachers Credit Union snags $786,000 a year.
Some credit unions throw their extra cash at vanity projects that likely do little to serve existing members or attract new ones.
For example, in California, Golden 1 Credit Union paid the NBA’s Sacramento Kings $120 million for naming rights the team’s arena. San Jose State University’s football field was renamed Citizens Equity First Credit Union stadium after the credit union shelled out $8.7 million of its members’ money. Suncoast spent $5 million on naming rights for a 3,500-seat arena on the campus of Florida SouthWestern State College.
Some credit unions even use their tax-free money to provide dicey loans for mansions and expensive toys. Technology Credit Union in California brags that it can underwrite $8 million home mortgages. Minnesota-based Wings Financial Credit Union is happy to provide loans for yachts and private planes, according to its Web site.
The fact that credit unions can spend millions on CEO salaries, sponsoring arenas and making risky loans for extravagant purchases sends a very clear message: the tax treatment of credit unions should be on the table in revenue neutral tax reform.
It’s simply not right to expect businesses struggling to make ends meet pay their taxes, while allowing wealthy credit unions to avoid income taxes entirely. Congress should examine whether the unlimited tax exemption for credit unions makes sense in all situations, or whether tax reform provides an opportunity for common sense updates.
Drew Johnson is a Senior Scholar at the Taxpayers Protection Alliance and National Director of Protect Internet Freedom. To read more of his reports — Click Here Now.