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Santa Maria Sun / Letter To The Editor

The following article was posted on September 6th, 2017, in the Santa Maria Sun - Volume 18, Issue 27 [ Submit a Story ]
The following articles were printed from Santa Maria Sun [] - Volume 18, Issue 27

In defense of credit unions

By Diana Dykstra - president and CEO, California Credit Union League

In her Aug. 2 commentary ("A tax exemption that is no longer justified"), Simone Lagomarsino contends that credit unions' tax exemption status is no longer needed. Her argument overlooks some key facts and fundamental differences between banks and credit unions.

Simone says, "many credit unions are virtually indistinguishable from taxpaying community banks" because of their larger size—and are thus unworthy of federal income tax exemptions. This argument conveniently omits the fact that Congress exempted credit unions in 1937 from federal income taxes based on their structure as member-owned and controlled, and not their size. Congress reaffirmed this tax exemption in 1951 and 1998.

Lagomarsino is mistaken that credit unions pay nothing. They do, in fact, pay taxes, including payroll, sales, unrelated business income, and real estate property taxes.

By their very definition, credit unions serve all their members. They provide a full range of products and services to the communities they serve, including the underserved. Unlike banks, credit unions do not have a history of redlining—the very practice that led lawmakers to impose community reinvestment requirements on banks. During the financial crisis, credit unions continued to lend to consumers and small businesses when other lenders were unable or unwilling to do so.

Credit unions provide an alternative to other financial institutions, and as financial institutions, they are expected to offer financial services. It's logical that larger institutions will offer a wider variety of services, including to business owners. Lagomarsino sees this as putting banks at a disadvantage due to the credit union tax-exemption status. Nothing could be further from the truth. Credit unions encourage other financial institutions to work harder to keep customers satisfied. Without this competition, banks could charge higher fees, pay lower interest on savings, and increase loan rates.

Credit unions serving members in Santa Barbara County, including the Santa Maria Valley, have recently generated a $69.1 million annual impact to the region's economy, which supported 537 local jobs in various industries and produced $7.8 million in savings to those members. A tax on credit unions is a tax on the middle class.

The bottom line is the credit union tax status is simply about our structure and service. Whether it is a business loan or an auto loan, the credit union's mission does not change: It is to serve the member-owners of a not-for-profit cooperative.

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