Transparency needed to determine if credit union tax subsidy is working

Credit unions first took shape in our country during the Great Depression. They were designed to serve a close-knit, underserved group of people and to play a role in making small-dollar loans to consumers. Today, large, complex credit unions are abandoning this important role and are inappropriately using their tax-exempt status in ways never envisioned.

Iowa's credit union industry is now dominated by a handful of large financial institutions - with billions in assets and making millions in profits. In 2014, the top 10 largest Iowa credit unions accounted for 75 percent of the industry's $13.1 billion in assets and for 86 percent of the industry's $133.1 million in profits.

Yet, these credit unions pay no federal taxes while making only a meager contribution to our state's fiscal obligations. And, 86 percent of the annual credit union tax subsidy is taken by 10 large, profitable Iowa credit unions.

Despite their not-for-profit status, credit unions are also not required to provide a public benefit in exchange for their subsidy. For example, an examination of Iowa credit unions' 2014 Home Mortgage Disclosure Act (HMDA) data shows that they provided less than 1 percent of their loans to low-income borrowers. In fact, the very people credit unions are supposed to serve end up paying more taxes than credit unions. There is clearly something wrong with a tax system where an Iowa family of four pays on average $11,402 in federal income tax, and a $2.5 billion Iowa credit union with $38 million in profits pays no federal income tax.

Equally egregious is that credit unions have no statutory requirement to ensure that their significant profits get passed onto their members. The result is that the primary beneficiary of the credit union tax subsidy is the credit union itself. The largest credit unions have used their untaxed earnings to rapidly expand into new markets, build new buildings, and pay high salaries to their executives. Credit unions are also rapidly expanding their loans to large commercial businesses - with little need for subsidized credit.

While most non-profits can, and do, provide a valuable service to our communities, the few who abuse the system are hurting everyone else. Federal, state and local governments lose billions of dollars in uncollected revenue. This contributes to the national deficit, results in cuts to city and county services and forces the rest of us to pay more in taxes to compensate. What exactly are Iowa taxpayers buying with this tax subsidy to large, profitable credit unions?

Iowans should ask their elected officials to hold large credit unions accountable to their tax-exempt purpose. A good first step would be to improve the transparency of credit union activities, so Iowans can determine whether the subsidy is truly working as originally intended.

' John Sorensen is president and CEO of the Iowa Bankers Association. Comments: jsorensen@iowabankers.com