Our Position:  Policymakers Must Revisit Tax Exemption for Credit Unions

Consumers in Washington face disproportionate harm from credit unions acquiring community banks. 

• In 2024, 25% of all credit union acquisitions of community banks in the country happened in Washington State, driven, in part, by credit unions’ nonprofit and tax-exempt status.
• This tax break for nearly $90 billion in credit union tax-free assets in our state will only grow as acquisitions of community banks continue to ramp up.
• This troubling trend is accelerating while our state faces a $12 billion budget shortfall, further undermining our economy and the vital state programs and services that run our communities.

Acquisitions by credit unions reduce competition and limit consumer access to certain financial services.

• Community banks provide about 60% of small business loans and 80% of agricultural loans. Displacing these local credit providers can reduce borrowers’ access to needed capital.
• When credit unions take over community banks, it reduces consumer choice of local financial services providers who understand the communities in which they operate and use this local knowledge in their loan decisions.

Credit unions do a poor job of serving economically disadvantaged areas.

• Community banks are governed by the Community Reinvestment Act (CRA), a law that ensures the needs of the communities in which they do business, including low- and moderate- income (LMI) neighborhoods, are met.
• The Community Reinvestment Act has led to billions in CRA-qualified lending between 2009 and 2020 throughout Washington State, specifically:
  • More than $72 billion in the Seattle-Tacoma-Bellevue area
  • More than $8.9 billion in the Spokane area
  • More than $3.8 billion in the Kennewick-Richland area
  • More than $3.7 billion in the Olympia-Tumwater area
• Credit unions do not have to comply with the Community Reinvestment Act, leaving consumers with fewer financial protections when credit unions acquire banks. .
• Moreover, data required by the Home Mortgage Disclosure Act (HMDA) indicate that credit unions deny a higher proportion of minority borrowers for home loans than banks and charge higher prices on the ones they do accept.

Bank acquisitions by credit unions are being fueled by a tax subsidy that was never intended for this purpose.

• Credit unions are exempt from Washington State's B & O tax and pay nothing in federal taxes. They were given special tax treatment because they were historically created to represent employee groups like nurses, teachers, and government employees.
• Now, instead of returning value to their members, many credit unions are using their tax subsidy to acquire community banks at artificially inflated prices.
• If credit unions are going to acquire banks, they should be treated like banks. Their tax exemption costs American taxpayers between $3 and $4 billion per year, while community banks generate $15 billion in tax revenue each year.