About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Banks Pressuring Congress to End Credit Union Tax Exemption


Long-time readers of this blog know how helpful credit unions have been in providing top deposit rates. Many of the best CD deals over the years have been from credit unions. Those higher CD rates have been especially important for savers and retirees in recent years as interest rates hit record lows. If bankers get their way, we may see fewer of those CD deals. Bankers and their lobbyists have been pressuring Congress to end the credit union federal tax exemption. According to this Los Angeles Times article:

Bankers long have complained the tax break is an unfair advantage for large credit unions. Now they see an opportunity to get rid of it as lawmakers begin work on a major overhaul of the tax code that is aimed at eliminating many corporate exemptions and lowering the overall tax rate.

It would be very likely that we would see fewer CD deals and other top deposit rates if credit unions lose this tax exemption. According to the LA Times article:

A 2012 economic study commissioned by the trade group found that removing the tax exemption would cost consumers about $10 billion a year through higher fees and interest rates on loans, as well as lower interest rates on savings.

Credit unions are fighting back. In May the Credit Union National Association (CUNA) and its affiliated state credit union leagues launched the “Don’t Tax My Credit Union” campaign and created the website donttaxmycreditunion.org. According to this website:

Unfortunately, the big banks and some in Congress want to raise taxes and impose new fees on 96 million credit union members who represent 40% of all Americans, yet represent only 6% of the assets in financial institutions. And, they want to do this despite the fact that credit unions are not-for-profit and meeting their core mission every day.

The site offers news on this issue along with a form to allow credit union supporters to contact their Congressman.

In my opinion, ending this tax exemption doesn’t make any sense, especially in an environment in which the big banks have so many advantages. In February I wrote about the issue of too-big-to-fail banks after George Will published an opinion piece in the Washington Post which advocated that it’s "Time to break up the big banks". In the article it was mentioned that in 2011, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo held 40 percent of all federally insured deposits. George Will stated that "there is a silent subsidy - an unfair competitive advantage relative to community banks - inherent in being deemed by the government, implicitly but clearly, too big to fail." In my opinion, ending the credit union tax exemption would be yet another win for the big banks.

Thanks to DA member shorebreak who posted on the LA Times article in this forum thread and DA member cumulus who posted on the CUNA campaign in this forum thread.

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  |     |   Comment #1
The big banks are to be commended for their consistency.  They participate in a relentless, daily, assault on their own customers.  Now they wish to extend that same assault to non-customers.
  |     |   Comment #2
I'll move my comment from the thread to here:

Here we have the banks complaining IN A VACUUM that the credit unions have an unfair advantage over them and that that isolated benefit should be taken away. Perhaps the banks should be just a bit more honest and argue that both banks and credit unions should be under all the same rules, which would serve to take away the banks' benefits, including their far fewer restrictions, such as on to whom they can lend. I believe credit unions must do most or all of their lending to their members. The banks are not so drastically restricted, and that gives them a big advantage over the credit unions, something they carefully structured their argument to avoid mentioning. The banks can lend to pretty much anyone, and even do major commericial lending. 

Funny how this dispute has been so controlled by the banks that no one has pointed out how deceptively structured the conversation has been, how controlled by the banks it has been, instead have stayed within the confines of the debate as the banks have defined it. 

Do not let the banks control the argument -- call them on their deception, and demand that they lose all the benefits they have that the credit unions do not have. That is, put it in an honest context, not the deceptive context the banks have created. With that, the banks would certainly back down -- as they know why they make so much more money than the credit unions.
  |     |   Comment #3
Banks are for-profit businesses.  Credit unions are non-profit organizations.  If banks want to go after removing non-profit status, then why not go after churches, charities, ect.  The banking industry arguement would set a very dangerous precedent if enacted.  The four major banks in the US just want to eliminate more competition and get even bigger.  Wny don't the credit unions go after the BIG FOUR under anti-trust laws and break up these banks that are too big to fail because they are monopolies.
  |     |   Comment #4
I've been following this issue since the 1980s and keep coming to the conclusion that most congressional representatives would rather avoid it entirely. The ABA and other lobbying groups tend to represent the interests of bank executives and stockholders. Credit unions tend to be more grass roots organizations. Executive compensation and stockholder dividends aren't an issue for credit union members. So, credit union members are more likely to perceive efforts to tax their credit unions personally. In contrast, I don't see many depositors rising to the defense of B of A. That's bad news for any elected representative who wants to side with the banks on this issue.

  |     |   Comment #5
Often CU executives get very high compensation too, like $350k-$500k/yr including perks.
  |     |   Comment #6
Yes, being non-profit does NOT mean that they get any less compensation than bank executives.
  |     |   Comment #7
I am not too thrilled these days with credit unions in general.  In the past I have placed deposits in credit unions sometimes getting a very good deal.  During this time of financial repression, however, many of the credit unions I deal with, have done little to nothing to help savers with special CD promotions.   Navy FCU used to be one of my favorite credit unions.   Now, they are just like the banks.  They seem to be giving all the good deals to the borrowers, and very little, if any, to the savers.  It is also like that with the other credit unions I belong to.   A year or so ago, I closed out one of my credit union accounts as it seemed silly to have small accounts sitting earning next to nothing.  Right now, at least I am getting 1.0%  on liquid accounts at one bank and also have the opportunity to get it at another bank.

Credit unions, in general, need to do more for "savers".   It's a 2 way street, having both borrowers and savers in it.  



  |     |   Comment #8
There's no such thing as one-size-fits-all banking. If you're happy with you bank, then by all means stick with it. My experience has been that banks typically gouge customers for fees, overcharge for loans and offer miniscule interest rates. Taxing credit unions might, at best, give bankers an ego boost, but there's no concrete exidence to suggest that taxing credit unions would necessarily translate into more business for banks. Paying taxes might cause some credit unions to charge more for loans and services while paying lower dividends. That won't provide credit union member with any incentive to run across the street to open an account at B of A. Paying taxes may also accelerate the existing trend toward credit unions merging in order to benefit from the economies of scale. That certainly isn't what banks need. In the long run, banks would be better advised to oppose measure directed a limiting their own powers than antagonizing credit unions and their customers.
  |     |   Comment #9
To the post that is upset about credit unions doing more for savers, they need to understand it has more to do with the current rates in the market such as the prime rate and the T-bills.  Those rates are in fact set by the market as a whole and financial institutions have very little control.  When you are lending at record low rates you have no choice but to cut the deposit rates you offer.  If you want to pay a higher rate than you are lending out you will end up like a savings & loan and will just go away.

So yes it is a borrowers market at the moment and it will become a savers market as market rates rise and financial institutions follow with higher savings rates.  Until than it's a great time to get a car loan or mortgage.
  |     |   Comment #10

Funny how the Too-big-to-fail banks ALL GOT BAILED OUT....

now they offer virtually NO interest on any of their saving and checking products...

If it weren't for the credit unions and their advantageous rewards checking accounts

savers would have nothing to show for their thrift.... Nice, that we live in a world of

NO MORAL HAZARD for the big banks and who they lend to, while the credit unions are largely

serving their communities and have never fundamentally BRoKEN THE SYSTEM!!!!

What a world filled with the relentless GREED of the BIG FOUR... BREAK THEM UP NOW!!!!!
  |     |   Comment #12
"Maybe it does not makes sense to all of us, but Obama needs a bigger tax base for his gimme this gimme that freeloader programs"

Maybe I missed the press release, but I haven't heard that the Obama administration favors taxing credit unions. So, if you have any direct evidence to support your statement, please cite it.

  |     |   Comment #13
The banks are just barking.  Credit Unions will continue to be tax exempt as long as they continue to operate as a not for profit organization.
  |     |   Comment #14
To Bancxman (anonymous) - #12,

Read this at: http://articles.latimes.com/2013/jul/06/business/la-fi-credit-union-taxes-20130706

Small insert that Obama is already planning to include such tax:

"Many tax-exempt credit unions have morphed from serving 'people of small means' to become full-service, financially sophisticated institutions," Frank Keating, president of the American Bankers Assn., wrote to President Obama last month.

"The time has come to abolish this exemption," Keating said in the letter, which was part of a blitz that included print and radio ads in the nation's capital.

Bankers long have complained the tax break is an unfair advantage for large credit unions. Now they see an opportunity to get rid of it as lawmakers begin work on a major overhaul of the tax code that is aimed at eliminating many corporate exemptions and lowering the overall tax rate.

The exemption cost $1.6 billion this year in taxes avoided and would rise to $2.2 billion annually in 2018, according to Obama's proposed 2014 budget.

  |     |   Comment #15
I'm looking at the bigger picture. The goal is to eliminate credit unions completely and turn them into banks. That way the largest banks who already control 40 percent of all federally insured deposits can buy-out the currently largest credit unions like Navy Federal Federal Credit Union, State Employees Credit Union Raleigh, NC., Pentagon Federal Credit Union, The Golden 1 Credit Union Sacramento, CA., Security Service Federal Credit Union, etc. and increase their customer base.
  |     |   Comment #17
Re: Anonymous - #16, Monday, July 8, 2013 - 9:56 PM

Sorry you went through all that 'cut and paste' for nothing. Your claim is false.
  |     |   Comment #19
Anonymous # 16

First of all, kindly keep your attitude to yourself. Snide referencences to the President being my "friend" certainly don't lend you any credibility.

Secondly, it took me exactly one minute to discover that everything you say about HR 4646 is a myth. To cite one reliable source:

HR 4646 was first floated in 2004 by one House member, who says it would replace the federal income tax and eliminate the national debt. So far it has gone nowhere.

I'll bet you picked this story up from one of those chain emails that keep circulating among persons with extreme viewpoints.

The plain fact still seems to be that the the Obama Administration expresses no support for taxing credit unions. Furthermore, this idea failed to gain much traction even during the Bush Administration when banks had much more influence in Washington.


  |     |   Comment #20
Does this mean that at present I should not be paying money on interest made in a credit union cd?

  |     |   Comment #21
How about non-profit individuals?  What little interest income I'm made over the last several years is leaving me in the whole.  I should be "tax exempt also!
  |     |   Comment #22
to #21; if you have little or no income, then you don't pay income tax.
  |     |   Comment #23
I love this website, but it's annoying when the discussions become political rants and tirades from the far right or far left (I notice it is usually the far right that is ranting on here, though). Some of this is natural on this site because it affects our money, but please research some of these things before you post them! Misinformation wastes everyone's time. (FYI to Anonymous #16's re-posting of some internet chainmail garbage).
  |     |   Comment #24
AJ, you can not separate money from politics. That is the subjet in Congress 24/7, it is all about the money. Find a bill that does not include polictics and money if you can and post it here, please.
  |     |   Comment #26
There is so much to think about when it comes to finances and I know nothing.  I am in the process of moving to Oklahoma City and was told to really research how to organize my finances.  I was told to do some research into credit unions in OKC to help me out and I have been learning a lot could be changing with CUs soon. I found even more information at http://www.mecuokc.org/.  Thanks for the post.

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