WASHINGTON – Credit unions have been snatching customers from banks amid consumer frustration over rising fees and outrage over Wall Street’s role in the financial crisis.
Now banks are fighting back by trying to take away something vital to credit unions: their federal tax exemption.
With fast-growing credit unions posing more formidable competition to banks, industry trade groups are pressing the White House and Congress to end a tax break that dates to the Great Depression.
“Many tax-exempt credit unions have morphed from serving ‘people of small means’ to become full-service, financially sophisticated institutions,” Frank Keating, president of the American Bankers Association, wrote to President Barack Obama last month.
“The time has come to abolish this exemption,” Keating said in the letter, which was part of a blitz that included print and radio ads in the nation’s capital.
Bankers long have complained the tax break is an unfair advantage for large credit unions. Now they see an opportunity to get rid of it as lawmakers begin work on a major overhaul of the tax code that is aimed at eliminating many corporate exemptions and lowering the overall tax rate.
In a 2010 report on tax reform, the President’s Economic Recovery Advisory Board said eliminating the exemption would raise $19 billion over 10 years and remove the credit unions’ “competitive advantage relative to other financial institutions” in the tax code.
Credit unions said the effort to take away their tax exemption was simply an attempt to stifle competition and remove one of the only checks on bank fees for consumers.