Credit unions’ federal tax exemption costs the U.S. more than $3.1 billion per year. Without reporting requirements holding them accountable to their mission, it remains unclear what exactly taxpayers get in return.
Together with the credit union industry’s outdated tax exemption and its continued campaign to whittle down field of membership requirements, multimillion-dollar stadium naming rights agreements have become a central component of how these special purpose financial institutions market themselves to new segments of consumers.
Last week, Utah Valley University (UVU) announced “the largest single gift in UVU’s history,” a $28.5 million pledge from Utah Community Credit Union (UCCU), with $20 million earmarked for a state-of-the-art soccer stadium featuring 10 luxury suites. This questionable use of credit union member – and taxpayer – resources highlights a troublesome trend within the credit union industry.
At long last, state and federal regulators have taken a hard look at a massive proposed deal in which a super-large credit union attempted to purchase a bank with over $1 billion in assets. And finally, they appear to have grown tired of these antics, put their respective feet down and said, “enough is enough.”
It’s not just credit unions that are making a pile from buying banks. As it turns out, there is a cottage industry of consultants and advisors behind these deals, which are fueled by credit unions’ federal tax exemption.
The latest bank-grab is Wisconsin’s CoVantage Credit Union snapping up Illinois-based LincolnWay Community Bank’s assets and customer base. The purchase of $277 million LincolnWay will bring CoVantage to over $3 billion in assets. Not exactly your father’s Oldsmobile, right? More like his fully loaded, mint-condition Cadillac.
The growing trend of credit unions buying banks is troubling in many ways. Perhaps the worst is that communities where large credit unions swoop in–especially in low- and middle-income areas–do not benefit from these transactions, despite egregious claims made by the head lobbyist for the largest credit unions in a factually tenuous op-ed in the American Banker.
Here’s how some large credit unions spend the money they save by not paying federal taxes: Super Bowl commercials to help them get even bigger.
Large credit unions continue using their profits to snatch up naming rights for buildings and stadiums across the nation. Plenty of companies do the same thing, but unlike those businesses, credit unions were given a special tax-exempt status so they could use their earnings to better serve consumers of modest means, not to build their brand. When will regulators and lawmakers finally start to take notice of this troubling trend?
According to the Tax Foundation, one of the nation’s leading independent voices on tax policy, the federal income tax exemption for credit unions is inefficient, narrowly beneficial to one subset of the financial services industry, and an unfair competitive advantage that “…could be reformed, and the resulting revenue used to further improve the corporate tax base or pay for new spending.”
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