Congratulations to the Iowa Hawkeyes football team on a memorable Holiday Bowl win. The Hawkeyes dominated the game from the opening kickoff. Competing against a fairly matched team on a level playing field, the Hawkeyes certainly represented Iowa well.
Clearly, the same cannot be said for San Diego County Credit Union, sponsor of the Holiday Bowl. Their brash “Don’t Feed the Bankers” television advertisements blatantly exposed what is wrong with large credit unions in our country. Mega credit unions are exploiting U.S. taxpayers and SDCCU, like so many of their kin, doesn’t seem to mind flaunting its tax privilege.
For Iowans unfamiliar with this mega credit union, SDCCU was originally chartered in 1938 as San Diego County Employees Credit Union. Its modest purpose was to serve the financial needs of county government employees. During the 1970s, SDCCU relaxed its membership requirement and now is open to everyone living or working in three densely populated counties, comprising nearly 9 million residents. And what if you don’t live or work within these three counties? No problem! Just join the Financial Fitness Association for an $8 membership fee and you’re in. SDCCU membership is essentially unrestricted, which explains how their membership has ballooned to over 400,000 and they have amassed $8.3 billion in assets. It also explains why they would spend millions sponsoring and advertising during a national sporting event.
In 2018, SDCCU generated a profit of $106 million after spending $16 million on marketing and promotion. Yet, as a “not-for-profit” cooperative, SDCCU paid no state or federal income taxes. A bank earning this amount would have paid over $20 million of federal income taxes as well as an additional amount for state income taxes. SDCCU does not return any of its profits to its members in the form of a dividend, but it does manage to pay its CEO total compensation of over $3.2 million. Does this sound like a non-profit worthy of a complete income tax exemption?
What is my issue with this California-based institution? My concern is this abusive credit union conduct is occurring all across our country, including Iowa. Nationally, the credit union industry has grown to over $1.5 trillion in assets, and is costing Americans about $3 billion in forgone federal income tax revenue annually, plus a substantial loss of state income tax revenue. And you and I pay for this tax giveaway.
While the vast number of credit unions continue to be relatively small institutions adhering to the concept of a common membership bond, rapid growth by large aggressive institutions has concentrated 75% of the entire industry in just 5% of credit unions. And Iowa is no different. There are 87 credit unions headquartered in Iowa. Four mega credit unions in Iowa posted combined profits of over $146 million in 2018, all of which escaped income taxation. Banks would have paid $30 million in federal income tax and $7 million in state income tax on these profits. You and I pay additional taxes because credit unions pay none. Or think of it another way. What could the state of Iowa do with an additional $7 million of revenue? Perhaps put the money toward mental illness, education, water quality, Medicaid or other critical issues facing our state?
It’s time to recognize that a small number of fake credit unions have abandoned the traditional credit union principles as we know them – serving individuals of modest means with a common bond. These fake credit unions have become billion-dollar, mainstream financial providers with high-paid executives, commercial lending platforms and wealth management divisions. It is time to hold them accountable to their tax-exempt purpose. Or at least level the playing field and let consumers decide who wins. The real question is, are you, the taxpayer, willing to continue taking punches from these mega credit unions? After all, you are footing the bill for their tax privilege.
Again, congratulations to the Hawkeyes on their resounding win. And thank you to San Diego County Credit Union for so shamelessly reminding us that banks and credit unions aren’t competing on a level playing field. In this game, it is the taxpayer that loses.
Stacey Bentley is president & CEO of Community Bank & Trust, Waterloo.