Credit union advocates like to talk about how unique their financial institutions are compared to banks. Once upon a time, they were right. Credit unions were different because they promoted thrift and provided low cost credit, especially to people of low- and modest-means.
Today, the only thing that makes large, profit-driven credit unions unique is that they don’t pay corporate income taxes, yet they are indistinguishable from the taxpaying banks they compete against.
Recently, the Internal Revenue Service (IRS) cracked down by forcing credit unions to actually pay "some" taxes on the profits from services deemed to be unrelated to the institutions’ tax-exempt mission.
But paying even a token amount of income taxes is apparently too much for Community First Credit Union.
The Appleton-based financial institution with nearly a $1 billion in total assets is suing the IRS for $54,604 in unrelated business income taxes it was forced to pay in 2006. That same year, Community First posted profits of $8.4 million and spent a whopping $550,223 on travel and conferences for its executives and board of directors.
The credit union industry’s corporate tax subsidy already costs Wisconsin taxpayers $40 million per year and $2 billion nationally. By the end of 2008, Wisconsin could have as many as six tax subsidized credit unions with $1 billion in assets or more. The explosive growth of non-traditional credit unions comes at the expense of taxpaying institutions, which ultimately erodes corporate income tax collections used to fund government services.
What makes matters worse is that several studies prove that large credit unions do a poor job of serving lower income and minority consumers, despite the tax subsidy they were given to serve that very population. In fact, a 2007 study revealed Community First shares the worst rating for making home loans to low- and moderate-income borrowers among Wisconsin’s largest credit unions.
The same study, which was conducted by two PhD economists, also found that the median income within a 2.5 mile radius of Community First’s locations is well above the county and state median.
Both findings indicate that Community First’s tax exemption is being used to subsidize financial services to the wealthy at the expense of lower income consumers.
Community First’s suit to keep it from contributing even the bear minimum in corporate taxes should have Fox Valley residents wondering what return all taxpayers receive in exchange for the credit union industry’s multimillion dollar tax subsidy.”
Kurt Bauer is president and chief executive officer of the Wisconsin Bankers Association (WBA).
