State Banking Associations Urge Treasury to Review Credit Union Tax Exemption

State banking associations ("the Associations") urged the Treasury Department to evaluate whether the modern credit union industry continues to warrant its longstanding tax-exempt status.

In a letter to Assistant Secretary Kenneth Kies, the Associations asked Treasury to study whether credit unions' "increasingly complex" operations align with the Federal Credit Union Act's original purpose "to expand access to financial services for individuals of modest means." The Associations said that credit unions now "offer complex investment products and even wealth management opportunities for consumers—activities that are far beyond what Congress initially intended when it afforded the federal income tax exemption to credit unions."

The Associations also cited data showing that over 450 credit unions now exceed $1 billion in assets and are engaged in activities like acquiring banks and "sponsor[ing] professional sports teams." The Associations argued these institutions "operat[e] like banks," but without equivalent tax or regulatory obligations.

The Associations also raised concerns over transparency, noting that federal credit unions are exempt from filing Form 990 and can "conceal" compensation and financial data. The Associations said this allowed them to offer services "far beyond what Congress initially intended."

The Associations also noted the Treasury's estimate that the credit union tax exemption will cost $32.2 billion over the next decade and called for a broader review of its fiscal impact on all levels of government.