Why
are credit unions tax-exempt?
Credit
unions do not pay income tax.
Here are
just a few reasons:
Credit
unions are not-for-profit, democratic, financial cooperatives
owned by their members. They were created to provide
financial services with member ownership and control.
Those characteristics are the foundation of the tax exemption.
Early
in the history of credit unions, the U.S. Attorney General
declared state-chartered credit unions exempt from federal
income taxes because they were "organized and operated
for mutual purposes and without profits." In the 1930s, legislators
passed a law to exempt federally chartered credit unions from
federal income tax for the same reason. Today legislators
continue to maintain that status because credit unions,
while growing and changing to meet modern consumer needs,
still operate in this unique way.
Credit
unions' boards of directors serve as unpaid volunteers,
elected by the members. Credit unions return all
excess income to members in the form of higher deposit
rates, lower loan rates and lower fees. Credit unions
don't need to create profits to pay stockholders as do
other types of financial institutions.
All
taxpayers, whether members or not, benefit from the presence
of credit unions in the marketplace. Credit union
competition helps keep down the costs of financial services
offered by all financial institutions.
What
would be the effects of a tax on credit union earnings?
- Credit
unions, if taxed, would have to take the money from funds
otherwise dedicated to reserves - the cushion protecting
all members and the credit union from economic shifts.
State and federal regulators require credit unions to maintain
adequate capital and other reserves. As a credit union
grows, it must continue to add to capital in order to keep
the ratio of capital to assets in line with regulatory
requirements. Credit unions cannot sell stock to raise
capital like other types of financial institutions. The
only way a credit union can add to capital is from earnings
set aside for this purpose. So taxation would reduce a
credit union's ability to grow and serve their members'
financial needs.
What
safeguards money deposited into credit unions?
All credit
unions headquartered in Tennessee are required to maintain
federal deposit insurance through the National Credit Union
Share Insurance Fund, operated by the National Credit Union
Administration.
On all credit
union advertising you will find this logo:
Members of federally insured credit unions
have over $5 billion in the National Credit Union Share Insurance Fund. This
self-sufficient fund, unique to the credit union movement, has never asked
for nor needed any money from taxpayers, unlike other federal deposit insurance
funds.
To learn more about the consumer benefits
of this insurance, download this Adobe Acrobat file: ncusif_benefits.pdf
In addition to deposit insurance coverage,
credit unions provide other means of protecting members' money:
- annual audit of the credit union
by a certified public accountant or through the credit union's
supervisory committee
- board policies governing all phases
of credit union operation
- appropriate training of employees
and volunteer officials
- security systems and security procedures
in all credit union service facilities
How
does a consumer benefit from doing business with a credit
union?
Today's credit union members (consumers
who own their own financial institution) enjoy:
physical and technological convenience
(including shared service centers, Internet branching, telephone
access to accounts, etc)
one-stop shopping (credit unions
have a reputation for offering all the services their members
need)
a personal, friendly, caring staff
motivated to offer the highest quality of service possible
the lowest possible cost for services
(credit union fees are much lower than competitors, and rates
are competitive in the marketplace)
How can credit unions offer these
benefits?
A credit union is a nonprofit, cooperative
financial institution owned and run by its members. Organized to
serve, democratically controlled credit unions provide their members
with a safe place to save and borrow at reasonable rates. Members
pool their funds to make loans to one-another. The volunteer board
that runs each credit union is elected by the members. Not for
profit, not for charity, but for service is a credit union motto.
Credit unions are not new. Originating
in Europe, credit union history began in this country when the
first credit union was formed in Manchester, New Hampshire, in
1909. Today, over 10,000 credit unions with over $480 billion in
assets serve more than 79 million people in the United States.
More and more people join credit unions every year and they are
pleased with the service. Credit unions have rated No. 1 in customer
satisfaction at financial institutions for 10 years according to
the American Banker Newspaper's annual customer satisfaction survey.
To join a credit union, you must be
eligible for membership. Each institution decides who it will serve.
Most credit unions are organized to serve people in a particular
community, group or groups of employees, or members of an organization
or association.
|
