Imagine that you own a business with a competitor that is like yours in virtually every way—except your competitor pays no taxes. Or, imagine that your next-door neighbor, who sends his kids to the same public school as yours, pays no property taxes on his home.

This is exactly the situation that more than 6,000 community banks face today. That tax-free competitor is your local credit union. Banks and credit unions offer identical services, from checking and savings accounts to credit cards, home loans and online bill pay.

And yet credit unions pay no taxes on their earnings. The credit union tax subsidy not only creates unfair competition with other financial firms, it also costs taxpayers $2 billion per year — unjustifiable in times of high deficits.

Credit unions have been tax-exempt for nearly a century, because they were originally intended to serve low-income people who were thought not to have access to banks. They were also intended to serve a particular group of people — say, employees of a company or members of a church — with a common bond. This narrowly defined, public purpose was the reason for the tax exemption.

Today, however, credit unions have vastly outgrown their special treatment. Together, they hold over a trillion dollars in assets. More than 200 credit unions have more than

$1 billion in assets, which is larger than 95 percent of our nation’s community banks. Credit unions have enlarged their member bases too, with some “common bonds” stretched to the point that anyone is eligible. And credit union lobbyists have aggressively sought to expand the industry’s commercial lending.

They have used their special treatment to run up large profits —credit unions collected $8.5 billion in profits in 2012 — all tax-free.

As credit unions have grown, they have lost sight of their mission to serve people of limited means.

In fact, credit unions have a worse track record at serving low-income people than banks. One study found that 24 percent of bank customers were low-income compared to

only 14 percent of credit union members.

To make matters worse, nearly half of credit union customers were upper-income, versus only 41 percent of bank customers. Credit union customers are more likely than bank customers to have a college degree and to own their own home. This means that taxpayers are essentially subsidizing financial services for affluent customers. It also means credit unions are being rewarded with a tax break despite failing to fulfill their mission.

Meanwhile, America’s community banks pay more than $4 billion per year in federal taxes. How can competitors in the same industry receive different tax treatment in a free business environment? Credit union lobbyists sometimes say that they deserve special tax treatment because they are owned by their customers. Before 1951, mutual savings banks — which, like credit unions, are owned by their customers — were also tax-exempt. But

Congress decided that mutual institutions had become equal competitors with commercial banks and so revoked mutuals’ exemption. The parallels with credit unions today are uncanny.

The federal government should not be in the business of picking winners and losers through the tax code; instead, it should offer an equal, competitive environment for every entity that offers banking services. Banks welcome honest competition — but fair play only happens on a level playing field. If credit unions wish to compete with banks, then it’s time

for credit unions to pay their fair share.

Martin B. Rowe is the managing director and principal shareholder of Legence Bank, a family owned community bank headquartered in Eldorado. 

(13) comments


Funny how looking at the FDIC records - his bank is a Subchapter S corporation. Subchapter S corporations do not pay federal corporate income taxes - just like credit unions. Yes, the individual shareholders pay personal income taxes.

Community banks play an important role in making sure our communities are strong. Credit unions try in many of the same ways to strengthen the community.


I have the unique perspective of spending 14 years in the banking industry (3 years as EVP then CEO of a mutual savings bank) and am completing my first year as a CEO of a credit union. Mr. Rowe's comments are basically the boiler plate write-up that the local state bank league/association sends to all bank executives.

First on serving the low-income, the percentage is hard to dispute since Mr. Rowe does not even provide the name of the study and who performed it to see if there is any bias in the numbers. However, the numbers can be skewed because many CUs serve particular segment groups that usually include a large employer, which would in almost all cases would not include low-income households. What is the percentage of low-income households that community chartered CUs serve? As the CEO of a community chartered CU, I know that we serve many low-income households that your large and community banks would not serve. Sometimes, I have to make sure that my old "banker" mentality does not sink in when developing our strategies.

Second in response to mutual savings banks, I think these organizations should consider a switch to a CU status since their #1 goal isn't to maximize shareholder wealth (They don't have shareholders.). However, there is some organizational structure changes that would need to be made for some especially if they have a heavy concentration in commercial type loans.

Third, are some of the mega CUs pushing the envelope on their structure? I think this is still to be determined. However, why are we comparing mega CUs to community banks? This is not apples to apples. Do we even want to discuss what the mega banks did to the economy?

Lastly, let's break down who helps and hurts with a tax code change. By not taxing the CUs, we are able to provide better rates and lower fees with additional money being used to add more services for the membership. Taxing the CUs would be a tax on the members because we would have to make accomodations for the additional expense. If you tax a CU, this may send more people to the community bank. I am sure Mr. Rowe would say that then the community banks could offer better rates and fees. However, maybe this will just add more profit to the bottom line. Where does this money go? Oh right, to the shareholder with the majority going to the principal shareholder like Mr. Rowe.

Please do not take this as a downgrade on community banks because they are an important part of society. They are able to offer some products and services that a small CU can't. However, I find it somewhat comical that we are to take an opinion at face value that more and likely maximizes the wealth of one while decreasing the wealth of several.


Your assertion about CUs not upholding their mission to serve the poor is ridiculous. Just because more poor folks are members of banks might have to do with location (lack of transportation, etc.) than the CUs not fulfilling their mission. But, this whole article is so one-sided that I had to lean very far (to the right) to read it.


Your article conveniently leaves out the reason credit unions are tax-exempt. They're NON PROFIT! All non-profits are tax-exempt. The revenue credit unions make are returned to the members in the form of lower loan rates and higher savings rates.

The playing field is naturally leveled. Because credit unions don't keep their profits, they don't have the money to put a branch or ATM on every block like banks do. They're generally a little less convenient. They don't offers as many products either. There are differences.

What you really don't like about credit unions is that they keep banks in check. Because credit unions can offer better rates, and don't charge fees for everything, it keeps the banks from offering worse rates and charging more fees than they already do.

Remember, Mr. Rowe, this is a free country. If you want your bank to operate as a non-profit, and be exempt from taxes, you're free to do so. There is nothing stopping you.


Marty, you are a phool. Credit Unions provide superior Customer Service and charge less and pay more to their customers. Many of your facts are lies. Are you an 0bama "lovah"? Sounds like it. You want everyone to be the same. Damn right that "Credit union customers are more likely than bank customers to have a college degree and to own their own home." They are that way because they make wise decisions, unlike the "Weaves and Thieves" who have many bastard children, and expect others to give them stuff..


You are right about everything except the Obama comment.

Obama tries to help the folks who need it. Where have you been?


Your comment is way out of line! I guess you must be one of those blind Republican Tea Partiers who are living in "La La land" (or more like "Lie Lie land", since those in the Republican Party are the ones who protect the big rich corporations, such as BANKS, oil companies, etc. I agree with JitterBug's response. You are also wrong about the college degree remark and the "weaves and thieves" remark, which is a disgusting remark.


Real facts:

Year-end 2012 assets
4 Largest US Banks:
JPMorgan Chase Bank = $1.9 trillion
Bank of America = $1.47 trillion
Citibank = $1.31 trillion
Wells Fargo Bank = $1.27 trillion

Total US credit union assets = $1.1 trillion


Good response! I also want to add that Bank of America and JP Morgan Chase Bank tried cheating my husband and me out of our money. We got tired of all the cheating from the banks, so we left the banks and are now happy members of a credit union and no longer frustrated.

Not Chart

Sounds like the Credit Unions are getting into your pocket book. I don't know why anyone would do business with a bank.


Imagine you owned a business that did not sit in the "star bond" district. Imagine you owned your home and had no children, but your neighbor rented his home and had 10 children in public school.


Oh, please! You have to be silly to buy into the poor me banker stuff. You boys have been raiding the chicken house for years and now want us to buy into this junk. Never?


Banks asking for a "level playing field" after their role(s) in the financial meltdown of 2008 and lack of consequences and accountability in the aftermath? Asking for "fairness" as they continue to fight tooth and nail against the reform being sought in Congress to prevent another one? I understand this is a small town family bank but are you f'n kiddin' me? Seriously?

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