University of Iowa Community Credit Union was founded in 1938 as the SUI Employees Credit Union, and its stated mission, reflected in its name, was to serve a narrow segment of the Iowa City population. In the 1930s, Congress exempted credit unions from paying income taxes to support a unique mission — serving small niche groups of consumers with modest means. The original writers of the 1930s law would find the mega credit unions of today unrecognizable — especially UICCU.
Since that time, UICCU has expanded into Cedar Rapids, Waterloo, Cedar Falls, Des Moines and the Quad Cities. It has leveraged its tax-exempt status, not to help people that don’t otherwise have access to consumer loans, but to fuel its own growth.
Today, UICCU is THE largest financial institution headquartered in the state of Iowa — with $4.7 billion in assets and making $70 million in profits — all income-tax free. Once an on-campus financial provider to faculty and students, UICCU currently has NO affiliation with the University of Iowa. However, with the Old Capitol as its logo and black and gold as its corporate colors, it is easy to understand why many Iowans wrongly assume UICCU is affiliated with the university! Meanwhile, UICCU takes deposits from our local communities and uses them to build new offices in high-income metropolitan areas as far away as Jordan Creek Town Center in West Des Moines and Waukee.
Recent ads paid for by the credit union industry say that their tax exemption is justified because they return their profits to their members. But the marketplace reveals that this significant tax benefit is largely directed to select members and potential members through aggressive rates for those with high-dollar accounts. As a result, Iowans are subsidizing credit for people that don’t need the subsidy, and this tax exemption is taking money out of the pockets of the people it was intended to help.
Robert Taylor is the CEO of Idaho State University Credit Union. In a Feb. 27 article for the American Banker, he points out that the credit union industry is losing about one credit union a day to consolidation as the larger credit unions expand into new territories, forcing many of the smaller credit unions to consolidate. He concludes, “It’s time for (large credit unions) to convert to bank charters and be taxed like the ‘big boys’ …”
I agree. As a community banker, I embrace healthy competition to help ensure consumer choice and reinvestment of profits into our communities. But a few of these mega credit unions are using the advantages intended for small, member-owned cooperatives to fuel explosive growth with little accountability to their membership or to the communities they serve.
Our state is in the midst of an extremely tight budget. My state senator often talks about the need to closely scrutinize tax breaks that have been in place for many years. One that needs revision is the tax exemption for Iowa’s largest credit unions. After all, shouldn’t they pay their fair share to support more classroom teachers, mental health services and clean water, just to name three worthy areas?
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The Iowa Senate has passed legislation that would tax Iowa’s banks and credit unions in the same manner. The legislation does bifurcate large and small banks and credit unions so that small institutions would get the biggest benefit. If enacted, UICCU’s 2017 earnings of more than $70 million in profits would net about $2.5 million for our state. Even if this tax reform is passed in Iowa, large credit unions will still have a federal income tax advantage, but at least they will be actively helping our state shore up its own budget. I am hopeful the Iowa House will pass this legislation.
I close with a visit to the UICCU website where they state that their vision is to “be one of the top ten financial institutions in the USA.” This begs the question: How does becoming one of the largest financial institutions in the country serve Iowans?
• Charlie Funk is president & CEO of MidWestOne Bank.