Taxing Credit Unions Will Hurt Consumers

Earlier this year, Iowa State University published a study that found same-sex couples were more likely to be denied a mortgage than heterosexual couples. To address this discrepancy, the first credit union to serve the LGBTQ community was formed this year in Michigan. Yet, not everyone supports credit unions. The Florida Bankers Association have long argued that credit unions should be taxed like banks, but therein lies the problem. Taxing credit unions threatens their business model which would only exacerbate the lack of financial services for LGBTQ communities.

Credit unions, created in 1934 with the goal of “people helping people,” have since supported communities often underserved by banks. At their core, credit unions are non-profits, meaning the earnings go back to their members, unlike banks where the profits go to the shareholders. Not only does this mean the dollars stay with the community but it also fosters a service-oriented business model.

This difference might seem marginal, but it allows credit unions to have certain advantages and perks that are otherwise forgone by banks.

82 percent of large credit unions provide free checking accounts, compared to just 38 percent of banks. Furthermore, credit unions generally accept people with lower credit, waive overdraft fees and give lower interest rates for loans. Perhaps this is why 85 percent of people are satisfied with their credit unions compared to 76 percent with banks.

But this doesn’t mean banks are bad. Due to their size, banks offer a wide range of services that makes them a good choice for many Americans. Yet, for those starting to build wealth and access credit, credit unions offer a path to millions that wouldn’t be possible through a traditional bank.

Despite their essential function for many communities, groups like the Florida Bankers Association have argued that credit unions are basically the same as banks and should be taxed.

This is bogus.

A report by the Joint Committee on Taxation shows that taxing credit unions would cost the country $2.9 billion in terms of lost income tax revenue for a single year. Additionally, credit unions support 90,000 direct jobs generating $16 billion dollars in economic impact. But to truly understand what could happen, we ought to look at what did happen in Australia.

In the mid-1990s, Australia rescinded its tax status on credit unions. “As a result, Australian credit unions were forced to introduce fees and account maintenance changes,” making it unable to competitively serve its members. By 2006, over half of all credit unions shut down, until only 149 were left. If the U.S. were to adopt similar measures, we’d see similar results.

Yet the real burden would be placed on those that need credit unions the most: the LGBTQ community. It’s no secret that underrepresented groups have more difficulty getting mortgages. A recent study found that a disturbing 73 percent of same-sex couples had more difficulty getting a home mortgage and had higher interest rates compared to heterosexual couples, despite them having a “lower prepayment risk.”

To address this gap, Superbia Credit Union launched a Michigan branch that will be the “first financial institution solely dedicated to serve the LGBTQ community across the country.” Myles Meyers, CEO of Superbia, commented, “If I walked into the same institution with my husband, we can come across different responses and welcome. And this is where it all starts to change for the community.”

As the push to tax credit unions has been supported by special interest groups like the Florida Bankers Association, it’s vital that credit unions keep their non-profit status. Credit unions serve different communities that many big banks can’t or won’t touch. Efforts to change the credit unions’ tax status would undoubtedly harm millions in the LGBTQ community that rely on credit unions to access financial services.

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