Credit unions are unique financial institutions, by design and provide valuable benefits to the entire financial marketplace. Right now, credit unions are facing challenges, so we felt it prudent to highlight the credit union difference and explain our purpose in the marketplace.

The mission has always centered on financial inclusion, education, and community support—values that continue to guide them today.

Member-Owned Financial Cooperatives
Credit unions were designed and remain as Member-Owned Financial Cooperatives. This means that we do not exist to make profits for a group of shareholders, but rather for member benefit and community good. Credit union management makes decisions with the best interests of members in mind. Each member of a credit union is equal and has equal representation. We provide services and education that benefit our members and improve your financial well-being. Our management answers to our Board of Directors, who are not paid for their roles, and are elected by our membership. This structure keeps us accountable to the needs of our credit union member-owners.

Benefits to the Financial Marketplace
As credit unions are accountable to our members and not-for-profit, we offer competitive products like free checking accounts with great perks, competitive rates, and lower fees for services. Not only does this benefit you as a credit union member, but it also benefits all financial consumers. For-profit banks know that because credit unions offer great services and financially advantageous rates, they too must remain competitive. This structure ensures balance that all consumers benefit, thanks to the presence of credit unions in the marketplace.

The Credit Union Difference
Credit unions were founded to serve consumers who were unable to obtain financial services from banks. This could have been due to economic issues, credit risk or geographic proximity to financial services. Congress recognized that groups of consumers had begun pooling their money and making loans to each other. They passed the Federal Credit Union Act in 1934 with the recognition that a not-for-profit financial services provider would provide competition and give more consumers access to financial services. Credit unions have expanded over time, and we still fulfill our mission of marketplace competition and a governance structure directed by member-owners. Despite credit union growth, we only account for roughly 8% of the financial market share in the United States. In fact, the entirety of the financial assets held by consumers in over 4,500 credit unions is less than that held in the four largest U.S. mega-banks.

Banks and credit unions are both necessary in our financial system, and while we overlap on many services, we are organized with different principles. As credit unions were designed to serve consumers and small businesses, Congress has established limits that mandate credit unions retain our original mission. Some of these are listed below.

  • Capital – Banks can raise capital for expansion and to grow business by issuing stock to shareholders who seek to earn an investment profit. Credit unions cannot issue stock and can only build capital for expansion through retained earnings. Our retained earnings, most importantly, provide financial stability for members and secondarily allow us to offer the products you need and expand our footprint for new growth.

  • Investments – Banks have more latitude for investment options to generate revenue and are free to invest in a wider variety of securities than credit unions. Federally chartered credit unions have limitations on investment options for our capital. This is by design to keep our focus on serving the needs of our members to generate operating revenue.

 

  • Loan Rate Caps – Unlike banks, federally chartered credit unions have a statutory cap on the interest rates we can charge for loans. Currently, we are not allowed to charge an Annual Percentage Rate (APR) of more than 18% for a loan. While this rate is much higher than most consumers ever see on a car loan or home loan, take a look at the current rate you have on credit cards or unsecured loans from not-credit union lenders. We are not allowed to charge above the 18% APR statutory cap on these products. You’ll find that the rates charged on credit cards to consumers with great credit often far exceed 18% APR. This is also designed as a deterrent for credit unions to prevent credit unions from making risky loans that could threaten the safety and soundness of the credit union system.

  • Commercial Lending – Credit unions can lend to businesses, but we cannot use more than 12.25% of our total assets for business lending. Again, this is designed to retain our industry focus on consumer and small business needs.

  • Rates and Fees – While you will occasionally find a better promotional or short-term rate or lower fee at a bank, overall, consumers typically see that belonging to a credit union has financial benefits. In fact, CFCU commissioned a study that shows households which primarily use CFCU save $1,156 per household each year vs a bank in our market areas. This equates to more than $40 million in economic benefit for our members in total, annually.

    For example, consider CFCU’s checking products: With many banks, sometimes you can avoid a monthly fee by attaining certain usage thresholds, while at CFCU, the account is free, regardless of use, but we then give you additional perks or opportunities to earn money by attaining usage thresholds. Without the market pressure of free checking from credit unions, what would be the cost of accounts for consumers?

 

Credit Union Taxation

Because credit unions continue our original mission and operate within the provisions set forth by Congress, we do have an exemption from paying Federal income tax on earning. This is comparable to the tax exemption for telephone cooperatives, electric cooperatives or even a YMCA, as these are all examples of member-driven organizations. Credit unions do pay property taxes, payroll taxes and certain other taxes, just like any business.

Additionally, credit unions are federally regulated and insured by the National Credit Union Administration (NCUA), a US Government agency. However, NCUA does not rely upon taxpayer dollars for operations. Their funding comes from credit unions with no burden to taxpayers.

Right now, there is a push to generate funds for Government operations. As such, the credit union tax status has been spotlighted by our for-profit counterparts as an opportunity to tax credit unions. If they are successful, the competitive benefits credit unions provide would be threatened. The change in the tax status would be detrimental to our industry and the benefits you enjoy as a member.

Want to be Involved?

As a member-owned cooperative, credit unions have one of the largest grassroots networks in the nation. Your voice matters to the congressional delegation. If you are inclined to help credit unions survive and continue our efforts, we humbly ask for your help. You may use the following link to Don’t Tax My Credit Union and ask your congressional representatives to protect credit unions. It will generate a pre-written message directly to your congressional delegation. Simply click TAKE ACTION after you are directed to the site.

Send a Message Supporting Credit Unions to Congress

Thank you for your business and support.