Three hundred four billion dollar credit unions, 5% of the industry, comprises 75% of the credit union industry’s total profits. They make so much money because they have completely evolved beyond their original purpose of supporting close-knit groups of modest- to low-income individuals. The largest credit unions have expanded to take as a customer virtually any person who walks in the door and engage in complex commercial lending. They are effectively banks that do not pay federal income taxes.
It’s important to make a distinction between these credit unions and the other 95%, some 5,600 small credit unions. Most of these smaller institutions have tried to remain true to their original mission. Because large credit unions have abused the credit union charter and have expanded well-beyond the credit union mission, they should be required to pay their fair share in federal income taxes, the same as every American citizen and business does today, and are also deserving of appropriate regulation to ensure consumers are protected from harm.
So how did the disparity in resources between the two types of credit unions arise? Let’s explore the history of credit unions to find out.
Congress passed the Federal Credit Union Act in 1934 during the Great Depression. To promote economic recovery, Congress wanted to encourage service to lower-income people united by a common bond. Congress restricted the customer base credit unions could serve – they weren’t designed to serve everyone. Congress limited the type of products credit unions could provide, to encourage small-dollar loans to working people of modest means. And in return for these limits, Congress exempted credit unions from paying federal income taxes.
But the largest credit unions have graduated. The top 5% of credit unions have effectively opened their doors to serve almost everybody, annihilating any sense of commonality between members. They enter into deals with car dealers where they underwrite the loans originated by someone else. They create complex loan syndication partnerships to fund large commercial projects across the country. They offer “toy loans” to their privileged members to fund private planes, RVs, expansive mansions and yachts.
While smaller community-centric credit unions hold true to the original credit union mission, large credit unions have looked the other way, abandoning their charter in the interest of becoming even larger financial institutions. Yet, the U.S. tax system continues to reward big credit unions for this form of cheating. Explore Credit Unions is here to challenge that.