Lawmakers should address tax inequity between banks and credit unions


Many things start with good intentions. But as time passes and institutions evolve, even the best of intentions can produce unintended results.

Credit unions were formed with good intentions — to help individuals of modest means, who share a meaningful common bond, gain access to credit. For some credit unions, this tax-exempt mission remains. But Iowa’s largest credit unions instead are investing member resources in more profitable commercial lending and wealth management business lines. And, by declaring the whole state of Iowa as their field of membership, their growing tax subsidy is hurting the very Iowa families they initially set out to help.

The University of Iowa Community Credit Union and Veridian Credit Union netted more than $125 million in profits last year, an increase of nearly $19 million over 2017. Together, UICCU and Veridian made more money than the rest of Iowa’s credit unions combined. Not too shabby, and all of it was income-tax-free.

That’s right, these big credit unions continue to pay no state or federal income taxes even as their profits grow at double-digit rates. Contrast that with the income tax that average Iowans will pay on their modest cost-of-living salary increases this year, all while our state lawmakers continue to look for ways to fund improvements in education, health care, infrastructure and water quality.

For years, we’ve been witnessing this evolution — where the mega credit unions are no longer focused on fulfilling their tax-exempt mission to serve the “little guy.” Instead, they are using their tax savings to pay million-dollar salaries to their senior executives, build fancy offices in the highest-income areas, and pay for naming rights to sports and entertainment venues.

These mega credit unions are definitely not the credit unions of yesteryear that used the tax exemption to extend consumer loans to those who would not otherwise have access to credit. The Credit Union Times recently reported the average year-end dividend issued to members from 11 credit unions nationwide was $55. Meanwhile, the total value of U.S. credit unions’ tax exemption will amass to $35.3 billion over the next 10 fiscal years, according to the U.S. Office of Management and Budget.

So, we ask: Why do big credit unions get this income tax break but not Iowa families? Why should Iowa families shoulder a tax burden, especially when it’s clear a particular group is not contributing its fair share?

More: Financial feud: Iowa credit unions call banks' tax claims hypocritical

Iowa banks pay their fair share in federal and state income taxes, offer customers competitive rates and fees, and give back to their communities through donations and volunteerism. As the leaders of two vastly different banks in urban and rural Iowa, we see how changing economic factors impact our customers.

And, we’ll keep advocating to end credit unions’ free ride because we care about Iowa families. As they sit down this year to complete their tax forms, we should remember the average Iowa household earns $56,570 a year and pays $6,788 in income taxes, according to data from the U.S. Census Bureau and IRS. Yet, the credit union down the street can make $75 million a year in profits and pay $0 in income tax.

Now is the time to pass legislation that will hold credit unions accountable to their mission, membership and communities. It’s time to address this tax inequity — something that started with good intentions but is no longer working.

Peg Scott is chair of the Iowa Bankers Association and CEO/ CFO of Union State Bank, Greenfield.

Brad Winterbottom is chair of Community Bankers of Iowa and president of West Bank, West Des Moines.

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