IBA - Illinois Bankers Association

The Truth About Credit Unions

Illinois' Credit Unions: Growing, Consolidating, and Often Indistinguishable from Commercial Banks - Full Study / Executive Summary

You may have seen the billboards, heard the radio ads or heard talk in your town about how credit unions escape paying their fair share of income taxes.

Here are the facts:

  • A bank and a credit union are both depository institutions, but there are some major differences. Banks pay federal and state income taxes, and credit unions do not. Banks are examined for how much they reinvest in their communities, and credit unions are not. Some credit unions in Illinois don't even have federal deposit insurance, and they still accept deposits (even local government deposits)!
  • Congress created credit unions in 1934 to serve "people of modest means" found in tightly-knit groups. In light of this limited purpose and their small membership base, Congress exempted credit unions from federal income taxes and granted them special regulatory treatment, and Illinois later followed.
  • NEW! The NCUA has proposed further expansion of the credit union industry's field of membership. This proposal oversteps credit unions' original purpose and intensifies an already unfair level of competition for banks. Most credit unions in Illinois were originally organized to serve one employee group or single rural community that shared a "common bond," but there remain few single-group bonds among the state's current credit unions. Two examples are Alliant Credit Union, Illinois' largest with $8.1 billion in assets in 2014 - larger than 99% of Illinois-headquartered banks - and Scott Credit Union with an ever expanding field of membership that includes 18 counties spanning two states.
  • Nobody is arguing that credit unions that have stayed true to their original purpose should be treated differently today, but some credit unions in Illinois have grown into multi-million and even multi-billion dollar, full-service financial institutions. These large credit unions long ago strayed from their original purpose. They provide the same diversified financial services as banks to a wide array of unrelated customers in large geographic areas - all while keeping their privileges of not paying income taxes and not being examined and graded on their reinvestments in their communities.
  • Everyone is paying more state income taxes these days, businesses and individuals alike. Everyone, that is, except credit unions. They pay ZERO. Why should credit unions enjoy a tax-free environment, while hard-working consumers and businesses contribute their fair share to help finance our roads and highways, fire protection and law enforcement, and other government services?

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