FORUM: Size and growth irrelevant in comparing credit unions, banks

This is in response to Rick Kahler’s Nov. 24 column, “Level the playing field between banks and credit unions.” While Kahler makes an effort to present a “fairness” approach to the taxation of financial institutions, he fails to provide an accurate portrayal of the fundamental differences between credit unions and banks, and therefore, his rationale is inaccurate and very misleading.

The core argument that Kahler and the banks make is that credit unions have grown “beyond their intended purpose in both size and scope,” and that eliminating the credit union tax exemption solves local, state, and federal budget shortfalls. We maintain that size and growth is irrelevant to the taxation issue.

Credit unions are not-for-profit financial institutions that return their profits back to their members in the form of dividends and lower loan rates and service fees. The 45 federally charted credit unions in South Dakota are not in business to make a profit. Banks, by contrast, are in business to make a profit for their share holders.

Both institutions provide services that are important to our financial system and have successfully co-existed for nearly 100 years. However, the incentives and financial structures are totally different.

The Credit Union National Association estimates that South Dakota credit unions provided $15,775,244 in direct financial benefits to the state’s 251,140 credit union members during the 12 months ending July 2013. These benefits are equivalent to $63 for each member or $120 per member household.

The credit union tax exemption arises from our unique structure as not-for-profit, democratically-controlled cooperatives – and that structure is unchanged over the past 100 years. The tax exemption has absolutely nothing to with the “environment,” size, growth or the breadth of credit union products and services – a fact clearly spelled out by Congress in the 1998 Credit Union Membership Access Act.

Unfortunately, the banks’ efforts to “level the playing field” is nothing more than a desire to eliminate competition and ultimately force local governing entities to choose one business over another.

Despite the existence of credit unions in the state, banks are doing just fine. In fact, in the 12-month period ending in June 2013, South Dakota’s community banks made $218 million. During that same time, credit unions made just $21 million. Additionally, banks have much broader powers than credit unions in areas of lending, investments, capital and who they can serve.

Another fact that is often left out is that credit unions have been growing much more slowly than South Dakota banking institutions – as reflected in the declining market share in deposits for credit unions in South Dakota. So, size and growth is irrelevant.

Perhaps the most interesting point is this: If banks truly believe credit unions have an unfair advantage, then why haven’t they converted to a credit union charter?

Credit unions serve and contribute to their communities. More importantly, they help thousands of low and middle income South Dakotans save and borrow wisely.

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