The Move Your Money project was born out of the Occupy Wall Street movement, which began in September 2011. The impetus was the announcement by Bank of America that they were going to impose a $5 dollar monthly fee for debit card users. On November 5, 2011, customers were to close their accounts at major banks and open new ones in community banks or in credit unions. Already infuriated by Wall Street’s recklessness leading to the 2008 financial collapse, the idea caught on like wildfire across the nation.
The effort worked, and Bank of America abandoned the debit card fee plan.
For the months leading to November 5, 2011 — and for several months after – millions of customers closed their accounts at the major banks and transferred their deposits to smaller ones and credit unions. Since then, credit union membership has been steadily growing. As of March of this year, credit union membership has increased to more than 95 million members and they hold 6 percent of the financial assets of United States to the tune of $1 trillion dollars.
Now the major banks want to destroy them.
This month the banking industry, via their lobbying group the American Bankers Association, started a huge lobbying effort to end the tax break credit unions receive as non-profit organizations – a tax break that allows them to run as a non-profit and offer their members services at a much lower rate. Credit unions received federal tax exempt status due to the 1934 Federal Credit Union Act, which was established in large part due to the economic collapse of the Great Depression (they still pay state and local taxes). The banks feel that the federal tax exemption is giving credit unions an unfair advantage.
Did I mention that commercial banks hold 93 percent of the financial assets of the United States?
In spite of controlling most of the financial assets and basically cornering the market on financial services, banks feel that the credit unions’ non-profit status does not allow banks to compete on a level playing field.
They feel that if credit unions act like banks then, well, they should be taxed like banks.
The trouble is they aren’t banks.
Credit unions are non-profit member cooperatives. Members are usually part of a labor union (i.e. teachers, postal workers), reside in a geographical area, or are part of a certain organization (i.e. a university). The term “non-profit” does not mean they cannot make money – it means that any profits must be used for the purpose of the organization. In this case, it is used for the benefit of their members, allowing credit unions to offer many financial products for lower costs and at a lower interest rate. There are also strict rules as to which financial products they can offer and how much of their assets can be used for those products.
In contrast, banks are for and about profit. All financial products are designed to maximize return for the benefit of share holders. Banks are also much easier to access than since there are no membership requirements.
So why does the banking industry wish to destroy them?
The answer can probably be found in a bill sponsored by Representatives Ed Royce (R-CA) and Carolyn McCarthy (D-NY) called the Credit Union Small Business Jobs Creation Act which would allow credit unions to increase the percentage of their assets that can be sued for small business lending. Credit unions are traditionally focused on community development by providing financial services to generally under-served populations. This act would allow them to spend more of their assets to help members with business loans. Currently they are allowed to use 12.25 percent. This law would allow that to increase to 27.5 percent. This could make almost $13 billion dollars available for small businesses.
Commercial lending is the cornerstone of the banking industry.
If credit unions could increase their business loans – at a lower interest rate – this could make a real difference in communities. More money would be put back into local economies, more jobs would be created, putting more money into the pockets of residents, which they could then deposit into the credit union.
It’s money that would not go to the banks.
In the end, this push by the banking industry is all about greed.
While the numbers do show that more people are realizing the benefits of credit union membership, they are little more than a stop gap to a complete oligarchy of a few banks controlling all of the financial assets of the United States and giving customers – often lower and middle income – an alternative to higher cost financial services. Whatever competition there is, it is limited. Furthermore, by virtue of their non-profit status, they are held to a much higher standard than banks. Eliminating the tax exemption would make credit unions unable to offer competitive rates and provide loans to people the banks ignore.
In other words, they would become banks.
Both groups are spending a great deal of time, and money, to lobby Congress and win the public relations war. Credit unions are fighting back with a campaign focusing on their community benefits and the need to provide alternatives for consumers. They are also encouraging their customers to contact their representatives.
While much of the rhetoric is about the tax exempt status, there is little indication at this point that Congress, or the president, is interested in eliminating the break. However, we are about to enter the campaign period for the 2014 congressional elections. Plus, there is a big budget battle looming and the estimated $2 billion in annual revenue that is estimated from eliminating the tax exemption has already been floated as a possibility.
If that happens, banks that are claiming they are too big to fail would become too big to control.
Disclaimer: The views expressed above are solely those of the author and may
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