The average Iowa family earns $56,570 and pays $6,788 in income taxes. Meanwhile, five of our state’s largest credit unions earned $160 million in net income in 2018 and paid nothing in income taxes. That’s right, every dollar of their profits was tax-free.
How can this happen, you may ask. Most organizations receiving this type of benefit have a charitable or tax-exempt purpose. Surely, government regulators would hold them accountable. Weren’t credit unions organized by small, cohesive groups to serve people of modest means?
It’s this lack of accountability that has created two different kinds of credit unions: Billion-dollar credit unions that are little more than banks that don’t pay income taxes, and a shrinking number of small, neighborhood credit unions committed to serving less affluent Iowans in underserved areas.
Five credit unions in Iowa possess assets of more than $1 billion. While these big credit unions amount to just 5 percent of the industry, they produce a staggering 76 percent of credit union net profits. Lawmakers never could have envisioned billion-dollar credit unions when they created these small, neighborhood nonprofits to spur community savings and lending during the Great Depression. Yet this segment of the industry has lobbied their regulators for new powers, such as commercial lending authority and the ability to raise capital from profit-seeking investors.
With their focus on growing the largest credit unions even larger, regulators have forgotten how credit unions are supposed to operate. Even beyond fears about investor capital ruining the purpose of credit unions, there is a growing concern about larger credit unions operating in ways that don’t sync with their nonprofit missions.
In Iowa, big credit unions are mining deposits in rural towns and using those dollars to make loans in wealthy urban areas. Their member common bond has become a sham, as one credit union touts members in all 50 states and 19 countries. They use their tax subsidy to pay millions to buy naming rights to sports venues and convention centers, like Veterans Memorial Auditorium in downtown Des Moines. And, as if state tax subsidies aren’t enough, they’re tapping local governments for tax rebates and incentives for state-of-the-art building projects — all of this, while paying their CEOs six- and seven-figure salaries.
Even some smaller credit unions are growing frustrated and embarrassed by the actions of their larger brethren and the decisions of their regulator. Whether they know it or not, this is creating an uneven playing field in the marketplace by creating a regulatory environment that benefits the largest credit unions. And by kowtowing to the interest and desires of those at the top of the industry, they are making it more difficult for community-focused banks and credit unions to survive. The result will be fewer choices for consumers.
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And, all of this is being supported by government tax subsidies and without any mandate to focus on those of modest means. Unless the current trend is altered, credit unions will be little more than a group of billion-dollar actors in search of profits while exploiting their not-for-profit structures.
By ending preferential treatment of the largest credit unions and stopping them from exploiting their nonprofit structures, Iowa can show it is serious about restoring fairness and common sense. It can protect the original mission of the credit union movement and help small credit unions and banks keep their doors open to serve Iowans.
• Peg Scott is chair of the Iowa Bankers Association, and CEO/ CFO of Union State Bank in Greenfield.