Posted on 09/05/2010 5:41:45 AM PDT by Libloather
Banks take aim at credit unions' tax-exempt status
By Mike Ivey | The Capital Times
Posted: Sunday, September 5, 2010 5:00 am
Amid the worst recession in a generation, the banking industry is again challenging the tax-exempt status of credit unions.
As nonprofit, member-owned institutions, credit unions have long been exempt from corporate income taxes at both the state and federal level. The idea is that credit unions provide a public service by offering loans to those who might not otherwise have access to credit.
**SNIP**
"With local, state and federal governments all facing serious budgetary emergencies, the largest and most profit-driven credit unions can and should pay their fair share of the tax burden," says Kurt Bauer, president and CEO of the Wisconsin Bankers Association.
Bauer is pegging his comments to a new report from the President's Economic Recovery Advisory Board which included ending the credit union exemption in a long list of recommendations on addressing the nation's budget deficit.
(Excerpt) Read more at host.madison.com ...
More taxes is always the answer.
Cutting spending, cutting exorbitant government employee pensions benefits and cutting lavish federal social benefits is NEVER the answer.
How about tackling the tax status of the Farm Credit System?
Because the Farm Credit System is for huge agri-business.
Whereas the credit unions are for the small guy.
When banks want to become nonprofit they can have tax exempt status, too.
It is insulting that the banks don’t get called on this.
BTW, are the banks paying taxes on all the bailout money confiscated from the taxpayer?
My aged father has banked with one of the big 5 national banks for 20+ years and used to maintain a 4 digit checking account and 5 digit total in savings and CDs. He had 'senior checking' that offered 'free checks', he ordered new checks and was charged. Before protesting he saw an error on the checks and sent them back for correction. You guessed it, another charge and a different order amount. Asking why, he was told that the 'free checks' were discontinued. We pulled the entire account, they had no apologies or concern.
The Savings&Loan banks self-destructed, the commercial banks liked the influx of business. Now they want the credit unions. I wonder if they will improve their service to get it?
I’ve been banking with a credit union for more years than I can recall...I don’t need to put money into the hands of some over paid CEO or to the government just to have a place to put my funds at a competitive rate of return. So, they now want to remove the tax free status of credit unions toward what end? By their very organization, they return their earnings directly to their stakeholders who PAY TAXES on their earnings. BTW, how many C.U’s were covered by the bank bail out?
TARP money was a loan. Why would they pay taxes on a loan? Did you pay income taxes on your mortgage?
“Did you pay income taxes on your mortgage?”
I’ll answer that one for him this way...no, I am paying income taxes on someone elses mortgage since a good deal of them blew up.
Credit Unions may have once served the little guy, but no longer. Conglomerates-just like the major banks, only they operate without paying taxes. Why?
And why do over paid federal employees need a credit union?
Not-for-profit does not mean you don’t profit. I don’t have a problem with small CUs being exempt from taxes, but you have some very big ones that act just like banks, yet they have tax exempt status. That is just plain wrong. There is dirty money greasing the hands of politicians at work here, too . . . Sen. Richard Shelby being one of them. Just another case of government rewarding constituencies and picking winners and losers.
Consider yourself insulted.
Thompson says credit union profits are directed back to members in the form of better rates on savings and loans along with lower and fewer fees on other services. In Wisconsin last year, he says that meant $200 million returned to nearly 2.2 million credit union members.
So if they are directed back to the members in lower loan rates and higher savings rates, they aren't really "profits" are they? My CU paid a small special dividend to all members, but that was largely because they had too high of spread between rates. If they predicted better they would have had no extra money at the end of the year and thus no "profit" at all.
While the new Volcker report does include ending the credit union income tax exemption as one way to reduce the federal deficit, it also mentions the growth of Subchapter S corporation arrangements — a way to organize bank ownership to reduce tax obligations.
Subchapter S banks pass their earnings along to shareholders in the form of dividends, who are then taxed as individuals. Theoretically, this can reduce tax liabilities for the bank's owners, who can use other deductions to lower their exposure.
Subchapter S might be good for a one or two branch community bank, but they really don't matter in the scheme of things. There is no way a megabank like Citi or Chase could be organized that way.
The only problem I've had with my CU is that they seem understaffed compared to the local bank, but that is probably why they can pay interest on my accounts while my bank doesn't anymore. It's not cheap to have extra tellers and many, many "loan officers" trying to sell me stuff. Also, the CU may seem busy just because the bank is closer to where I work, so I can go there at a dead time like 2pm instead of having to drive to the CU at lunch or [shudder] Saturday morning.
Just face it, a for profit bank, especially one with a distant managament trying to squeeze out every nickel from the customers to improve its Wall Street rating is going to provide worse service than a local CU. The banks don't want to compete on Main Street so the are bumping up their fight on K Street.
Ok, good point.
But as a loan, are the banks paying interest on the money? and is there a specified payback schedule?
Somehow, I have to think that my relationship to my mortgage holder is different than that of banks to the federal government as regards TARP.
The rate is 5% for the first 3 years and then it jumps to 9%. It also includes equity, in the form of warrants.
I have to think that my relationship to my mortgage holder is different than that of banks to the federal government as regards TARP.
AFAIK, your mortgage holder doesn't have the power to limit your salary or dividends.
I get your point, and I don't dispute it.
But the banks are not the red headed stepchild here. And their push is not about leveling the playing field.
And if there are CUs that are exceeding their boundaries as credit unions, that should be dealt with.
The whole concept of "credit union" has changed tremendously since I was a kid. At that time a CU's membership was limited to a specific group that it served. Mid Florida CU requires nothing beyond residency in a geographic area it serves. And even that is elastic. I moved to another state and maintained my CC and accounts there.
So, in theory, assuming most banks that got TARP money don't fail, we're going to make money on the deal.
But based on interest rates in general, those terms seem impractically draconian.
Yes.
But based on interest rates in general, those terms seem impractically draconian.
Yeah, but you gotta stick it to the rich banks. They wanted the rates high enough that the banks would want to pay it back as soon as possible.
I think the original terms for AIG had an initial rate of 9%. Not sure where their final rate ended up.
Sounds suspiciously “loan sharkey” to me. If a bank actually needs the money, how are they going to pay back a loan with such high interest? I don’t know what a bank’s average return is on money loaned out after bad loans are factored in, but it doesn’t seem like it could be 9%. Not in today’s environment.
A lot of the smaller banks are falling behind in their payments.
A banker friend of mine told me that the big banks no longer want to service individual account holders with savings and checking accounts. They loose money at it. The small depositers (most people) mean nothing when they are now getting money nearly free from the Fed.
All our banking has been with our Credit Union for 30 years. They do things that no bank can or will do.
Without Credit Unions the big banks would charge much more for every day service and follow all the latest govt dictates. The big banks only pay profit on their taxes. How much tax would a Credit Union pay if they maintain a non-profit profile? USAA Insurance is the same way. All the profits go back to the members as dividends on their accounts. For those of you who complain about Govt employee Credit Unions..there are plenty of other credit unions who will take you as a member and you will get the same treatment.
Further..
All the big banks in the US are now virtually arms of the USGOV. They can’t fail and the USGOV is also now guaranteeing that them make a profit by loaning money from the Fed and leting them buy Gov Bonds yielding a profit. So they are getting back more than any of their taxes in the form of guarantees and Govt subsidized profits. They are making money the new fashioned way—from the Govt.
People complain about all the new fees, but small accounts are an expensive pain in the ass.
The small depositers (most people) mean nothing when they are now getting money nearly free from the Fed.
How much money do you think banks are borrowing from the Fed?
The big banks only pay profit on their taxes.
Did you mean, the big banks only pay taxes on their profits?
When it comes to small community banks vs large credit unions, it largely IS about leveling the playing field. The single largest issue for community banks is good stable funding with deposits. CUs rake off a really good percentage of that funding because they can offer tax exempt subsidized deposit rates. But their loan offerings are typically a more expensive source of loans than us. You would be amazed at the number of people who want to do their checking with a CU (the 2 or 3 I am thinking about are NOT traditional CU’s), but they come to my community bank for loans. Nothing wrong with that, and we make some of those loans, but they don’t understand that we need deposits as the raw material/ inventory for making that loan.
We are in the community making loans that benefit our local community, but none of those CU’s are, aside from the few member loans they make there. Local community banks, IMHO, do a far, far better job of serving the community than large CUs, but we need the deposit inventory to make a difference. I don’t mind competing for it, but the deck is definitely stacked against the community bank on the deposit side.
No offense taken or intended. Just wanted you to see another aspect of this debate. Have a good holiday.
Still getting a free pass on their taxpaying status.
Nothing like low taxes. Last time I looked the Banks were getting a free pass by investing in idiotic things and then giving the taxpayer the shaft.
How many credit Unions have gone bust in the last year compared to the tax paying banks?
When will people realize that all the major banks paid back all the TARP funds already? There are some smaller banks, AIG, and some of the credit arms of Car companies that have yet to repay their TARP loans. Oh and of the big banks all of them paid back TARP plus interest and in many cases the banks didn’t even want the loans but were forced to pay them.
I wonder if these people that are so angry about TARP if they were forced to take out a mortgage on a property they wanted to pay for in cash and had to be told when they would be allowed to pay that loan back and were told at what interest they would be forced to pay.
In many cases it wasn’t the banks that conned the taxpayer. It’s the Government that conned the banks.
I know, investing in mortgages and having those taxpayers default. Silly banks.
Never. The other story sounds better. Most people think banks are getting free money from the Fed and investing in risk free bonds for a guaranteed profit. They never bother to do the math.
You stated you are a small banker. So I have a Q? Are credit unions forced to comply with the Community Reinvestment Act? If so, to the same extent as banks? Same # of report filings,etc.?
I did not know the answer to that, so I did a little reasearch and I don’t think CRA applies to them. Here is a link to a page on the NCUA website that contains a summary of federal law that applies to credit unions (federally chartered):
http://www.ncua.gov/Resources/RegulationsOpinionsLaws/LawsEnforcementAuthorities.pdf
I do not know if there are any state chartered CUs that do not have federal deposit insurance.
I have no sorrow for the skanks, er Banks.
I know, lending to those deadbeat taxpayers, what were they thinking?
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