Credit Union Tax Exemption Needs Rethinking
In this time of severe budget cuts hurting local cities and towns, Massachusetts residents need to know that their local credit unions are not paying their fair share of taxes to support basic services such as fire, rescue and police departments.
That’s why we were disappointed to see the Nov. 23 opinion piece in the Worcester Business Journal by Southbridge Credit Union CEO Jeffrey Davenport titled “Credit Unions as Important as Ever.”
While we too applaud the 100th anniversary of credit unions, Davenport failed to mention that so many credit unions have moved so far beyond their original membership “common bond” that they resemble banks in every way, including doing commercial lending. Yet they are not required to pay taxes.
Expanded Mission
One large credit union advertises “Do you have a pulse” for membership eligibility. In Worcester County, Digital Federal Credit Union spent $5.2 million for the naming rights of the former Worcester Centrum — a deal, in essence, subsidized by local taxpayers.
Moreover, it is wrong for Mr. Davenport to suggest that banks across the country are at fault for the current economic crisis. The so-called bailouts occurred mostly in, or due to the acquisition of, large investment companies, not retail banks. It was largely unregulated mortgage companies that produced so many bad loans that precipitated the crisis. Massachusetts banks did not make subprime loans and continue to lend as they serve as the backbone of their respective communities, create wealth for customers and award millions of dollars to local charities.
In his overview of the history of credit unions, Mr. Davenport omitted some important information. Credit unions were granted a tax exemption 70 years ago to serve low-income people who had little access to financial services. Now that there are so many large credit unions serving middle- and high-income people, why should the tax exemption continue? (There is a precedent for a change in policy. In 1951 after concluding that mutual savings banks, co-operative banks and savings and loans were in “active competition” with taxable institutions, the U.S. Congress removed their tax exemption.)
If Mr. Davenport believes so heartily in credit unions’ “conservative style of banking,” why are credit unions engaged in commercial lending? In fact, credit unions are now lobbying to expand their commercial lending authority in federal legislation.
Locally, in Massachusetts, large credit unions are seeking the ability to accept state and municipal deposits. Why should large credit unions benefit from business from the state and local municipalities when they pay no corporate income taxes to support those governments? As large credit unions continue to expand, so does the cost to American taxpayers. Is this “the proud 100-year tradition” Mr. Davenport hopes to perpetuate?
Daniel J. Forte is president and CEO of the Massachusetts Bankers Association.
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