What is a credit union?
A credit union is a not-for-profit financial cooperative, owned and controlled by the people who use its services. These people are members. Credit unions serve groups that share something in common, such as where they work, live, or go to church. Credit unions exist to provide a safe, convenient place for members to save money and to get loans at reasonable rates.
Originated in Germany in 1849, when poverty-stricken farmers and workers pooled their money to make loans to one another. Today, credit unions in the Dakotas serve over 440, 543 members (nearly 1 in 3 Dakotans is a member).
Credit unions are different from banks.
Credit unions offer many of the same financial services that banks do, but are very different organizations. Banks are in business to make a profit, while any earnings made by credit unions after ensuring reserves, are distributed to members in the form of dividends, reduced interest charges, and added or
improved services. There is no inner group of stockholders who benefit personally from the success of credit unions.
Credit unions are cooperatives and like all cooperatives, have certain core characteristics.
• Not-for-profit; credit unions don’t make money for anyone but their members.
• Supporting social and community programs to improve the quality of life for everyone.
Credit unions are safe.
Credit unions, like other financial institutions, are closely regulated. The National Credit Union Administration, an agency of the federal government, regulates federally-chartered credit unions, and in North Dakota, the Department of Financial Institutions regulates state-chartered credit unions.
The National Credit Union Share Insurance Fund, administered by the NCUA, insures deposits of credit union members at more than 9,000 federal and state-chartered credit unions nationwide. Deposits are insured up to $250,000.
Credit unions serve their communities. In the Dakotas, credit unions actively participate and sponsor many of their local charitable organizations, as well as a variety of statewide socially-responsible projects such as Habitat for Humanity, Special Olympics, American Cancer Society, and Children’s Miracle Network—Credit Unions for Kids.
Member/Consumer satisfaction. For the 24th consecutive year, credit unions finished first among all financial institutions in customer satisfaction, according to the 2008 American Banker/Gallup Consumer Survey.
Credit unions DO pay taxes.
In North Dakota, both state and federally charted credit unions pay sales tax, use tax, real and property taxes, and payroll taxes. In South Dakota, federally charted credit unions pay real and property taxes, and payroll taxes. Credit union members pay taxes on their interest and dividends. Congress exempts credit unions from federal income taxes.
Why credit unions are exempt from federal taxes.
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 (in which an organization’s members share in the profits and expenses) 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, still operate in this unique way—no matter what their size.
The exemption was established in 1937, affirmed by statute in 1951, and re-affirmed in 1998 in H.R. 1151, the Credit Union Membership Access Act, which states:
Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because credit unions are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.
Credit unions benefit ALL consumers.
All taxpayers, whether members or not, benefit from the presence of credit unions in the marketplace. Credit union competition helps keep bank and savings and loan prices lower. For example, credit unions offering credit cards now charge an average two to three percentage points’ lower interest than other lenders. Imagine how expensive other lenders would make credit cards, or auto loans, if they didn’t have to compete with credit union rates.
Some financial institutions are asking legislators to tax credit unions. The truth is a tax hike on credit unions is a tax hike on all American consumers.