January 2009

The credit union industry is diligent in regularly interacting with Congress to improve regulatory conditions. Provident Credit Union actively participates with national and state groups that assist in these legislative endeavors. Collectively, the movement also continuously educates legislators about the real value that credit unions offer the average American. From the very beginning, when Congress passed the Federal Credit Union Act in 1934, credit unions have been tax-exempt and recognized as not-for-profit financial cooperatives.

Not-for-profit

When the phrase “not-for-profit” crops up, it is sometimes labeled as a tax loophole. But credit unions truly do operate very differently from banks and other for-profit financial institutions:

• Credit unions such as Provident do not offer stock options, sell stock, or pay quarterly profits to stockholders. Our only “stockholders” are our members. A credit union member's account holdings are what make them a shareholder.
• If a credit union has extra funds after making loans from the funds that deposits provide, by law it can only invest them in short-term, safe, and conservative instruments, and are forbidden from making speculative investments for capital gain.
• Unlike banks, credit union operations are overseen by an all-volunteer board of directors. They do not even benefit from stock profits, since all profits after expenses is given back to the credit union’s members (in the form of higher dividend yields, lower loan rates, and few or lower fees for services).
• While banks can sell stock or otherwise recruit secondary capital, the only way a credit union can improve its net capital reserves is to retain earnings. Therefore, any money earned by a credit union is returned to the membership by adding to its capital.

Credit unions are tax-exempt because of our mandate to reinvest into our membership.

Taking our case to Congress

Originally, a credit union’s field of membership was generally based on a smaller community, corporation(s), or military base. But as communities grew, companies merged, and military bases closed, credit unions often extended their membership fields to include additional companies or geographical areas where their members lived. While this provided credit unions the opportunity to remain financially sound, their growth was seen as a threat by the bank industry.

When the banking industry took aggressive action and a lawsuit was filed by the American Bankers Association (ABA) in the mid-1990s, the credit union industry responded by taking its case to Congress. This launched the 1998 Federal Credit Union Membership Access Act, which updated the law to reflect current practices. And even though credit unions were never allowed to engage in speculative investments, bank lobbying resulted in this law also imposing tougher reserve limits for credit unions.

What are the banks really worried about?

In 2003, the assets of all credit unions combined, nationwide, totaled about $629 billion. The assets of all banks combined nationally totaled about $7.6 trillion. Credit unions only hold about 6 percent of the market share while banks hold about 94 percent. From 2002 through 2006, two new credit unions were opened in California. In the same time period, 80 new banks were opened in California (source: California Department of Financial Institutions). Additionally in California, the average credit union is about $300 million in assets, but the median is under $35 million in assets.

Help us to help you!

Because credit unions are owned by their members, it is very important that local congressional representatives hear from you, our member/owners! If you are interested in helping your credit union movement, go to the Connect for the Cause Web site and follow the easy steps to take action. It will identify your congressional representatives, and provides some pre-written letters to your representative to use as is or as a guideline to composing your own. This is a highly effective way to exercise your influence at the state and federal level, and oppose the efforts of the bank industry's paid lobbyists.

Thank you for your time and interest. Together, we can make a difference.