Recently credit unions have become adept at stealing away bank customers because of consumer frustration concerning rising fees and disgust in Wall Street’s role in the 2007 financial crisis.
This has not gone unnoticed by the banks and they are beginning to fight back. They plan to do this by taking away their federal tax exemption. The banks are worried that fast growing credit unions are becoming formidable competition to the banks. The banks are now pressing congress to end the tax breaks with were first introduced back in the Great Depression.
Credit unions have developed in recent years, and many are now sophisticated full financial service providers. Banks have complained that credit Union tax breaks give them an unfair advantage over traditional banks. The current Credit Union exemption costs the government $1.6 billion in lost revenue.
The PERAB (President’s Economic Recovery Board) claims the exemption will increase to $19 billion over the next decade thus removing the Credit Unions current tax advantage over other financial institutions. Credit unions warn that removing their tax exemption is simply a move by the banks to stifle competition.
Expansion of business model
All this ironically comes at a time when some in Congress are pushing to lessen Credit Union regulations, so they may expand their business models further. This may include laws that may remove the limit on money they can loan to businesses.
Credit unions are dependent on the tax exemptions, because legislation prevents them from raising capital through stocks like banks can. If the tax exemptions go, Credit unions will have to convert and become banks, which is what the banking institutions want to happen, thus creating a monopoly.
Cost to consumers
A recent survey suggests that if the Credit Union tax exemption is removed it will cost consumers around $10 billion a year through higher interest rates on loans, lower interest rates on savings and general fees. This projected loss of income will lose the federal government $1.5 billion in lost taxes.
The 1934 law concerning Credit Unions stipulates that the tax exemption is on the condition that Credit Unions remain non-profit institutions that operate without capital stock and are for the benefit of their members. Initially Credit Unions were small affairs but have now grown into bigger institutions since the 2007 financial crisis.
Credit Union membership has leaped to almost 96 million. This is an increase of 2.7 million since the start of 2012. This is now worrying the traditional banks. The banks claim to have no problem with competition. However, they claim Credit Unions are playing on an un-level field and claim Credit Unions have simply become tax exempt banks.
The banks claim Credit Unions hold more than $1 billion in assets each. The banks also claim they’re not interested in smaller Credit Unions but are targeting the ones which have grown out of recognition. Credit Unions are responding to the bank’s accusations by saying they are simply changing with the times to meet new challenges and the wishes of their members. All of these terms and concepts can throw the average consumer for a bit of a loop. Before making any significant banking changes, it would be a good idea to consult someone who has completed an online accounting masters program first.
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