Credit unions are not-for-profit, member-owned, democratically controlled financial cooperatives — that is, they are mutual organizations operated entirely by and for their members.
Once you deposit money in a credit union, you become a member, not just a customer, because your deposit is considered your share of the ownership in the credit union.
Historically, credit unions offered only savings accounts and consumer loans. Many have expanded their services during the past few decades in response to their members' changing — and more sophisticated — financial needs. Some credit unions offer credit cards, debit cards, checking accounts, IRAs and share certificates in addition to a variety of methods of access and electronic delivery of services. Credit unions also are expanding the types of loans they offer. Many offer mortgages, home equity loans, student loans and small-business loans to members.
Credit unions may look like banks in that they both offer financial products and services to consumers. But that's where the similarities end and the differences begin.
As cooperative organizations, credit unions exist solely to meet their members' financial needs, not to make a profit off of them. In fact, after expenses are paid and reserves are set aside, credit unions return their "profits" to members in the forms of lower loan rates, higher savings rates and free or low-cost services. That's why consumers typically get better rates at credit unions. For-profit financial institutions, on the other hand, exist to generate profits for a relatively small group of stockholders at the expense of their customers.
As a member/owner of a credit union, you have a voice in the overall governance of the credit union. Each credit union is run by a board of directors who are primarily volunteers elected by, and from, the membership. This democratic process ensures the board remains accountable to the membership. At for-profit financial institutions, the boards of directors are accountable only to stockholders, not to customers.
While for-profit financial institutions can serve anyone in the general public, credit unions can serve only the individuals within their fields of membership. A credit union's field of membership is the association, affiliation or geographic area stipulated in its charter that legally defines who may become a member.
Credit unions were created to enable people to pool their financial resources to help themselves and each other. Credit unions still operate by this People Helping People philosophy today. They exist to bring people together in a cooperative effort so these people can receive low-cost, high-quality financial services. This philosophy helps explain why survey after survey shows consumers trust credit unions to look out for their best interests more than any other type of financial institution.
Why Credit Unions Are - And Should Remain - Tax Exempt
Credit unions have always been exempt from federal income tax because legislators recognized that credit unions are mutually owned organizations operated entirely by and for their members. Moreover, credit unions are not-for-profit, democratically controlled cooperatives that have no capital stock and rely heavily on volunteers. Congress encouraged the success of the credit union movement in order to bring financial services to people who were unable to obtain them elsewhere and to foster the development of a system of financial cooperatives that would serve as a valuable alternative to the traditional "for profit" banking system. Over the years, legislators have deliberated, reviewed and reaffirmed the tax-exempt status repeatedly because credit unions, while growing and changing, continue to operate in this unique way.
Taxation would not create a "level playing field."
Banks and their trade associations have attacked credit unions' tax-exempt status. They argue that all financial institutions should operate on a "level playing field," which they define as all institutions paying federal income tax.
However, the structure of credit unions and banks is fundamentally different, so taxing credit unions would not make credit unions and banks "level."
As previously mentioned, credit unions are mutually owned cooperatives. Once expenses are paid and reserves are set aside, credit unions return any profits to their members in the forms of lower loan rates, higher savings rates, and new and improved products and services.
If banks want to create a "level playing field," they should stop paying their boards of directors, stop generating profits for a relatively small group of stockholders, and start giving their customers authority to participate in their governance.
The tax exemption has nothing to do with a credit union's size, the services it offers or the members its serves. Credit unions deserve their tax-exempt status because of their not-for-profit, democratically controlled cooperative structure.
All consumers benefit from credit unions
Not only are credit unions a place consumers can trust to be safe and sound, they are also a place to receive a good deal. Indiana’s 2.2 million credit union members benefit by close to $150 million annually through better rates and lower fees compared to if the only choice available to consumers was for-profit financial institutions. This is because credit unions are member-owned, not-for-profit cooperatives, and earnings not needed for reserves and operations are returned to members through better rates and lower fees.
You can help maintain credit unions' tax-exempt status
Those of us who are credit union members know how our credit unions will go the extra mile to help a member. The Indiana Credit Union League (ICUL), other state leagues and the Credit Union National Association (CUNA) share these "good news" stories with lawmakers to help them understand how credit unions' unique structure and philosophy help improve the lives of consumers.
You can help by sharing your own "good news" stories with us. Tell us how your credit union put its People Helping People philosophy to work to help you. We won't use your name when we pass along your story to lawmakers unless you give us permission to do so. Send your "good news" story to the Indiana Credit Union League at email@example.com or mail it to us at P.O. Box 50425, Indianapolis, IN 46250-0425