As lawmakers consider a host of provisions to reduce government spending and raise revenue, credit union lobbyists are scrambling to protect their $30 billion income tax exemption. While the industry’s talking points focus on the credit union mission and not-for-profit cooperative structure, the landscape looks markedly different from when Congress last considered tax reform in 2017:
- Credit union assets have increased 70% from $1.37 trillion to $2.31 trillion;
- A record number of credit union bank acquisitions were announced in 2024;
- And credit unions flaunted their tax status in Congress’s face last year when they not only defended a pricey stadium naming rights deal with the NFL’s Washington Commanders, but also proclaimed that it should be applauded.
Although credit unions were created to serve those of “modest” means connected through some common bond in a local community, times have changed, and bank acquisitions and multimillion-dollar marketing campaigns are just the tip of the iceberg of how credit unions are using taxpayer subsidies to fuel their growth.
In addition to plowing millions of their untaxed retained earnings into bank buys and naming rights, growth-oriented multibillion-dollar credit unions are raising investor capital and pursuing increasingly lucrative investment opportunities. It was recently announced that the nation’s largest credit union has joined a venture capital fund as a limited partner alongside more than 130 credit unions, credit union service organizations (CUSOs), and credit union leagues. Jumping into the VC business wasn’t exactly what Congress envisioned when lawmakers created credit unions back in the day.
Predictably, the credit union lobby has been quietly pushing both its primary regulator and state legislatures to expand credit unions’ investment authority, even in the midst of its full-throated defense of the tax exemption on Capitol Hill. This juxtaposition demonstrates how far out of step the so-called “movement” has become throughout the last several years: the more credit unions with over $1 billion in assets pursue strategic growth initiatives far beyond their mission and structure, the more loudly the industry’s hired guns must promote their supposed cooperative principles to preserve their tax status.
Investment authority expansion is no exception. While credit union groups characterize these efforts as opportunities to foster innovation and enhance member service, their policy requests betray their true intent: to redefine CUSO regulations—recall that the National Credit Union Administration’s lack of third-party oversight extends to CUSOs—so they can more easily invest in financial technology companies and “share in the growth” of those firms.
Despite the credit union system’s significant growth since 2017, these not-for-profit cooperatives want even more power to “invest in a broad range of investment alternatives” given the competitiveness of “today’s financial services marketplace.” It’s notable that unlike most other nonprofits, federal credit unions are also exempt from unrelated business income tax, another irregularity that benefits credit unions’ bottom lines at taxpayer expense.
The misalignment between credit union activities and congressional intent as it relates to the credit union mission and structure is abundantly clear. As policymakers contemplate the credit union income and unrelated business income tax exemptions, they ought to consider how the modern credit union industry operates and whether its special treatment is still warranted today.
