Daniel Plauda: Credit unions a vital, locally owned option for consumers

Every day, nearly 3 million Illinois residents are among 96 million Americans who count on their local credit union to reach their financial goals.

As not-for-profit financial cooperatives, credit unions were first exempted from federal income taxes in 1917 explicitly to fulfill a special mission as valuable and affordable alternatives to for-profit banks to serve individuals with a common goal or interest.

Credit unions can be formed to support producers, such as farmers; purchasers, such as independent business owners; and consumers, such as electric coops.

Their primary purpose is to meet members’ needs through affordable goods and services of high quality. Credit unions may look like other businesses in their operations and, like other businesses, can range in size. However, the cooperative structure is distinctively different, regardless of size. It is the structure of credit unions, not their size or range of services, that is the reason for their tax-exempt status.

Credit unions are owned and democratically controlled by the people who use their services. Members are owners who pool funds to help other members. After expenses and reserve requirements are met, net revenue is returned to members via lower loan and higher savings rates, and lower costs and fees for services.

Their boards of directors consists of unpaid volunteers, elected by and from the membership — everyday people like you. The credit union “people helping people” philosophy motivates credit unions to get involved in countless community charitable activities and worthwhile causes.

Even though credit unions are exempt from income tax, they still are subject to, and pay, property, payroll and sales taxes, as well as a host of governmental regulatory supervision fees.

Since their inception, credit unions have more than fulfilled their mission, as evidenced by Congressional codification of the credit union tax exemption in 1951 and 1998. Though the range of services has evolved to effectively serve their members in an increasingly competitive financial marketplace, the cooperative structure, which is the reason for their tax-exempt status, has remained constant.

Last year, credit unions returned financial benefits to their members of $6 billion — nearly four times that which would be realized by subjecting credit unions to taxes. In other words, the full benefits of the tax exemption were passed on to members, and then some — primarily because credit unions do not have to pay dividends to stockholders.

In addition, credit union presence in the marketplace makes bank pricing more consumer friendly than it otherwise would be. The benefit this moderating influence has on bank customer pricing is estimated to total $2.3 billion last year.

In Illinois by most recent estimates, credit unions annually provide more than $198 million in direct financial benefits to almost 3 million members.

In an era that continuously poses economic and financial challenges, credit unions remain true to one principle — people before profits — and represent a highly valued resource by consumers during these uncertain economic times.

A credit union’s goal is to serve all members well, including those of modest means — every member counts. Credit unions exist solely for this reason, not to make a profit. Members know their credit union will be there for them in challenging times, as well as good times — which is the reason why they are so fiercely loyal.

Daniel D. Plauda is president and chief executive officer of the Naperville-based Illinois Credit Union League.

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