Setting the Records Straight on Credit Unions
In response to the column titled "Everyone should be paying their fair share" published on January 2, in The Courier, I believe it's important to clear-up a few of the issues outlined.
When addressing matters of public policy, particularly when these issues impact the financial well-being of more than one million Iowans, it's important to provide accurate information.
First the claims that credit unions in Iowa are "subsidized by the Iowa taxpayer". Credit Unions in Iowa do not receive governmental assistance or payment from the state treasury. Credit Unions are able to provide financial services at a reduced cost to Iowans by investing in our members rather than profits to shareholders. Iowa's eighty-nine credit unions offer Iowans a choice on where they do business.
Financial institutions are permitted to assess fees for services and also to charge interest on loans. This may include a monthly fee paid to a bank to hold an account or the interest paid to a credit union on your mortgage loan. As with any business, at the end of the year financial institutions subtract the amount of money they received for services (revenues) from their total costs (expenses). Banks call the difference between these two numbers "profits". These funds are used to provide executive bonuses, shareholder dividends, etc. Credit Unions call this difference "earnings", this is because we don't make a "profit" from our members, instead the money earned by providing financial services is used to cover costs and legally mandated reserves, with any excess then returned to the membership. This is done either through an increased dividend on savings accounts or a reduction in the interest rate charged on loans. In Iowa, this equates to more than $100 million dollars returned to credit union members and our economy.
Every credit union in Iowa is cooperatively owned. When someone becomes a member of a credit union they are asked to deposit a "share". This is a fixed dollar amount that will be held in their account as long as they are a member. This is their ownership stake in the credit union and ensures full access to financial services and a vote in credit union operations. That means that each credit union is owned entirely by its members and each member has an equal voice in how their credit union operates. Should a member decide to leave their credit union, their share is returned to them and they surrender their voting rights. This is in contrast to banks that are owned by a small group of stockholders. In this model, the customers of a bank have no say in how the organization is run and a stockholder may choose to sell their ownership stake for a profit.
Regarding the claim that credit unions have gotten too big and are exceeding their mandate. As credit unions, our most basic function is to ensure all Iowans have access to financial services, particularly those that may not otherwise have access to those services. Last year, sixty-one percent of the mortgages originated by Iowa's credit unions were to low and moderate income individuals, as well as forty percent of consumer loans.
The statement that credit unions do not pay taxes is inherently false. Banks in Iowa pay a state tax on their reported income and credit unions pay a state tax on their legal reserves. If the law were to change, requiring for-profit banks and not-for-profit credit unions to pay the same state tax, the State would only receive approximately an additional $4 million and the $100 million that credit unions continue to provide to Iowa's economy would be drastically reduced.
Credit Unions support the right of every Iowan to choose what type of financial partner they feel most comfortable with and no matter what; we will continue to operate under the credit union philosophy that guided our industry for over one hundred years "people helping people".
Before blame for the current state of our mental health and education systems or our State's infrastructure is placed on Cedar Valley credit unions, I think it's important to understand the truth behind the numbers and also to remember what these credit unions provide to our community.
We ask all Iowans to contact your State Senator and Representative and ask them to protect your financial choice.
Written by Tom Blanford, Cedar Falls Branch Manager
Tom Blanford is a lifelong Cedar Valley resident and graduate of the University of Northern Iowa. He has spent ten years in the financial industry with both banks and credit unions. He currently works for Collins Community Credit Union in Cedar Falls.