Iowa consumers should be paying close attention to state tax reform discussions because their financial choice is at risk. Banks have claimed for years that Iowa’s not-for-profit credit union industry is hurting them. What is their true motive? Eliminate competition, which would result in the loss of needed checks and balances on rates and fees that credit unions provide. Banks are attacking credit unions, but the real victim would be Iowa consumers.
Their argument is decades old, yet they have found sympathetic ears in the Iowa Senate which recently passed a tax reform bill that claims to help hardworking Iowans keep more of their money, but actually raises taxes on 20 Iowa credit unions and their 600,000 member-owners. Fortunately for Iowans, the House is working off Gov. Reynolds’ tax plan, which did not include a tax increase on credit unions and their members.
The bank lobby will stop at nothing to make their case and continues to share misleading information with lawmakers and the public alike. Banks deceive the public to make them believe credit unions don’t pay taxes, which couldn’t be further from the truth. Iowa credit unions pay millions in taxes each year, including property tax, sales tax, payroll tax and a state moneys and credits tax on their legal reserves.
Instead of complaining about credit union taxation, banks should be more transparent about the ways they mitigate their own state taxes. In 2017, the bank state franchise fee tax liability in Iowa was $53.8 million. But according to the Iowa Department of Revenue, the net gain to the Iowa general fund was just $14.8 million after franchise fee tax credits were cashed in by bank shareholders and other miscellaneous tax credits were deducted. Instead of attacking credit unions, they should justify why they avoided paying 72 percent of their tax liability.
Banks claim credit unions are hurting community banks, yet a recent Wall Street Journal article showcased the real threat to small banks are Wall Street banks, which have seen a 180 percent increase in domestic deposits in the last 10 years since the financial crisis (that they caused). In Iowa, out-of-state banks control 24 percent of our state’s financial marketplace. To put that in perspective, that’s more market share than the entire Iowa credit unions industry combined.
But size is relative, and bankers don’t like to put things in perspective. The bank lobby likes to attack large credit unions, especially University of Iowa Community Credit Union, as if a credit union can suddenly outgrow its mission. Wells Fargo alone is larger than the entire U.S. credit union industry, so UICCU still is a small financial institution compared with large banks.
Credit unions, including UICCU, operate with the same mission: to provide credit at a fair and reasonable rate to Iowans — a mission they are more than fulfilling. Credit union statute does not define a credit union by its size, and Iowa consumers shouldn’t be penalized because the institution they trust has earned the trust of many more Iowans who find value in their services. Unlike banks, credit unions are restricted from raising secondary capital, therefore earnings have to build the safety and soundness of the institution. Penalizing organizations for growth and success goes against the very backbone of the American economy.
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The bank lobby also fails to mention that consolidation is happening at an alarming rate in both the bank and credit union industry, thanks to the regulations imposed after the financial crisis. Regulation that was aimed at the “too big to fail banks” has actually hurt community banks and credit unions, causing consolidation. Unfortunately, this trend will likely continue. The big will get bigger, and the small will disappear.
Credit unions are needed now more than ever, but bankers are working hard to get a credit union tax increase added into the House tax reform bill to eliminate choice and competition. Please join me in asking your state representative to oppose any tax increase on Iowa credit unions and their hardworking members.
• Patrick Jury is president & CEO of the Iowa Credit Union League.