Tax-exempt credit unions save US consumers $15bn per year, study reveals

The study estimates losses of $5.6bn in annual federal income tax revenue if credit unions’ tax exemption was removed

A report released this week has found that US credit unions’ federal tax exemption benefits both credit union members and non-members, and the US economy as a whole. 

The study, commissioned by the National Association of Federally-Insured Credit Unions, estimates that US$56bn in federal tax revenue would be lost over a decade if credit unions have their tax-exempt status cut. The report also found that removing the exemption could reduce economic activity in the US by $120bn and cost 79,000 jobs over ten years.

Credit unions have been exempt from federal income tax since their inception due to their non-profit, co-operative and member-owned structure. Though critics of the tax exemption for credit unions claim their status is based on outdated legislation that no longer reflects credit unions’ role, the report released this week details how both credit union members and non-members benefit from the passing along of value from the tax exemption. 

The report calculates that the lower rates and fees enjoyed by credit union members ranged from $4.4bn to $10.7bn per year over the past decade. Bank consumers were also found to benefit from increased competition brought about by credit unions. The combined benefits to both members and non-members of credit unions were found to be approximately $15bn per year.

Related: NAFCU president responds to banks’ attacks on tax exemption

The NAFCU-commissioned study calculated the cost of losing such benefits, with an estimated 50% reduction in credit union market share if their tax exemption was removed. If this happened, an estimated $8.4bn in personal income would be lost per year, leading to around a $12bn per year reduction in GDP and a resulting $5.6bn loss in annual federal income tax revenue.

This week’s report builds on previous research examining the impact of credit unions losing their tax exemption in Australia and Canada.

“Reduced competition for consumer financial services led to higher interest rates on consumer loans and lower interest rates on deposits in both countries,” says the report.

Dan Berger, NAFCU’s president and CEO, welcomed the report’s findings, saying: “As not-for-profit co-operative financial institutions, credit unions have always put their members first by providing them with the best financial products, rates, and lower fees. Today, 125 million consumers are members of a credit union.

“Consumers continue to recognise the benefits of credit unions and how a credit union can help them achieve financial freedom. The tax exemption status provided to credit unions has yielded dividends to consumers, Main Street businesses, and the US economy through lower fees, better financial products, and better rates.”