Do you know what makes a credit union different from a bank? Credit unions are not-for-profit financial cooperatives and are fundamentally different from banks in many ways. These differences provide significant benefits to consumers, and because of these differences, Congress has exempted credit unions from paying federal income taxes.

The banking industry is challenging credit union’s tax exemption status and new federal laws and regulations are changing the structure of the financial services industry. It’s important for consumers to understand the value of credit unions and the importance of tax exemptions. Here are some of the differences:

Credit Unions
- Owned by their members
- Focused on serving consumers
- Not-for-profit financial cooperatives
- Must be eligible to join
- Earnings are returned to members
- Pay payroll, property, and sales taxes

Banks
- Owned by their stockholders
- Focused on generating profit
- For-profit businesses
- Anyone can be a customer
- Profits are distributed to stockholders
- Pay federal income taxes, although many smaller banks are exempt

What is a Credit Union?
First established in the United States in 1908, credit unions are not-for-profit financial cooperatives, and are owned by the people who save and borrow there. Every member has the right to vote on credit union policies, and for members of the credit union board. The majority of credit union boards consist of volunteer members. Unlike most other financial institutions, credit unions do not issue stock or pay dividends to outside stockholders. Instead, earnings are returned to members in the form of lower loan rates, higher interest on deposits, and lower fees.

Who can join a Credit Union?
By current federal statute, credit unions cannot serve the general public. People qualify for a credit union membership through their employer, organizational affiliations like churches or social groups, or by being a resident of a county that a community-chartered credit union is allowed to serve.

What is the credit union philosophy?
Credit unions don't just exist to provide financial services - they provide financial services for the purpose of improving lives. While their first responsibility is to their members, part of being a cooperative movement means looking beyond walls to the larger community. This philosophy leads them to support worthwhile charitable and social causes, and to work together with other credit unions to help educate their communities about financial wellness.

The Political Challenge
Banks often claim that credit unions “don’t pay taxes.” Credit unions do in fact pay taxes – payroll taxes, sales taxes, and property taxes. Congress exempts credit unions only from federal income taxes in large due to their social purpose: people helping people. The exemption was established in 1937, affirmed by statute in 1951, and re-affirmed in 1998 in H.R. 1151, the Credit Union Membership Access Act, which states:

“Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because credit unions are member-owned, democratically operated, not-for-profit organizations...they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.”

You be the judge.
Our nation’s big banks claim that credit unions are making “huge” market share gains, are “empire builders”, and that credit unions are making it difficult for banks to compete, but consider these recent statistics:

At year-end 2003 banking institutions held over fourteen times more assets than credit unions ($9.077 trillion vs. $629 billion). The nation’s largest bank (J.P. Morgan Chase) is as large as the entire credit union movement!

The average banking institution is fifteen times larger than the average credit union ($986 million vs. $66 million in assets).

Credit Unions have only 6.49% of the total market share of financial institutions.

source: Economics and Statistics department, CUNA and Affiliates.