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Credit unions and banks: the tax debate

Banks vs. Credit unionsCredit unions don't pay taxes. But should they?

E. David Locke, president of the small McFarland State Bank in suburban Madison, Wis., says yes. Mark Wolff, Sr. Vice President of Communications for the Credit Union National Association, and Cherie Umbell, spokeswoman for the National Credit Union Administration, an independent federal agency that supervises and insures federal credit unions and state-chartered credit unions, say no.

Credit unions act like taxpaying financial institutions, complains Locke, "without the little inconvenience of paying taxes."

"Credit unions are federally tax-exempt because they are cooperatives," says Umbell. "Members are borrowing their own money and that of their friends. People of small means have a place to go to save and borrow and better their lives. We are not there to make a profit the way banks are set up."

"Baloney!" counters Locke. "What galls me is when they sing that hymnal that they are not for profit. They've got to come clean on reality."

"Oh, come on," laughs Wolff. "Banks keep complaining, yet this is the seventh straight year they've reported records profits." Umbell adds, "If banks are complaining they have no money, then stop paying your board of directors."

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The lines between credit unions and commercial banks are blurred and indistinguishable, says Locke. "They offer the same array of products and services. And credit unions have access to all the government agencies. Plus they don't pay tax! They've got an obligation, a duty, to pay their taxes. I do."

What angers bankers is the bottom line. "My bank paid $348,000 in state and federal taxes last year, on $70 million," Locke reveals, "and a small credit union, the University of Wisconsin Credit Union, made $370 million and paid zero taxes."

Canada began taxing its credit unions in 1972 and Australia began taxing credit unions in 1993, and bankers' associations are quick to point out that credit unions in those countries continue to prosper.

"Credit unions are all things to all people. All perks and no responsibility," says Locke, who has testified before many federal and state legislatures. "They're not nonprofit. That's a lie. They sing a song that's not consistent."

Robbie Woliver is a freelance writer based in New York
To comment on this story, please e-mail the Bankrate.com editors

-- Posted: Jan. 19, 2000

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