Letter: Credit unions are very different from banks
Saturday, March 17, 2018
Detroit Lakes Online (March 16, 2018) - Earlier this month the president of Midwest Bank complained about the tax status of credit unions. Although he was accurate that we are competitors, he missed the whole point why we are different. Comparing banks to credit unions is like comparing apples to oranges. They both may be fruit, but they are entirely different. I have had the opportunity over my 39 years in the financial industry (24 years on the community banking side and the last 15 years on the credit union side) to clearly see and experience the difference.
Credit unions are not-for-profit financial cooperatives owned by and for their members /owners. Credit unions are focused on serving their members by promoting saving, and providing loans for productive purposes. This focus has not changed since 1934 when the Federal Credit Union Act was enacted. Credit unions serve a specific field of membership such as employer, association, community or rural district.
Credit unions must generate a positive profit, to provide support for growth and services to its members. Credit unions have no other ability to raise capital. Excess earnings from the credit union are either returned to the members in dividends, by providing lower cost services, better deposit rates, or reinvested for the betterment of the membership.
In addition, credit unions are governed by a volunteer board of members. Congress exempted credit unions from federal income tax because of their structure as not-for-profit financial cooperative. The credit union mission is to promote thrift and provide access to credit for provident purposes. Credit unions do pay a wide variety of taxes, including employment and property taxes.
Conversely, commercial banks are owned by shareholders who benefit from the excess earnings generated by the bank. The focus of a for-profit entity is to generate a positive return to the shareholder, provide capital to allow the institution to grow, and yet yield a competitive product in the marketplace. Nationwide commercial banks comprise 93 percent of the banking industry, while credit unions compose the final 7 percent.
These are the two models within the banking industry, profit versus not-for-profit. I will not criticize the for-profit model. There is not a wrong or right model, they're just different. Each model has its advantages and disadvantages. For-profit banks are entitled to returns on their investment; likewise credit unions are entitled to serve their members.
The president of Midwest bank criticized our earnings over the past eight years. I cannot speak to how he invested their earnings, but I can give examples of what Mid Minnesota Federal Credit Union did with ours.
During those years, we merged-in a struggling credit union in Ashby. We opened a branch office in Pequot Lakes to better serve our members. We expanded our financial education program to additional schools and organizations. We merged-in the small credit union in Twin Valley that wanted more services for its members.
We expanded into Detroit Lakes because there wasn't a credit union serving Becker County. We provided improved online and mobile access to our members. We became part of the nationwide shared branching network allowing our members to have access to over 5,400 branch locations across the country and access to over 60,000 ATMs. We reinvested thousands of dollars in donations in our various communities. We provided seven jobs in the Detroit Lakes area. Plus, our members realize an average benefit of $132 per household, per year, by using a credit union for their financial services.
Credit unions earn their tax exemption by their structure and their actions — which are different from banks — like apples and oranges. And Mid Minnesota Federal Credit Union is very pleased to share that difference with the Detroit Lakes community.
— Charles D. (Chuck) Albrecht, president/ CEO, Mid Minnesota Federal Credit Union.