Every year around this time, as the credit union faithful return from the annual Government Affairs Conference (GAC) in Washington, D.C., one topic is an action list constant: Preserving credit unions’ tax-exempt status.
Although efforts to maintain this status tend to take on a higher level of urgency whenever a new administration moves into the Oval Office, credit union leaders were more concerned than usual this year.
According to a recent interview with Michael Goad, CEO of the $2.4-billion Dow Credit Union, anyone who believes in the value of credit unions has reason to be worried.
“The Trump Administration is definitely looking to broaden the tax base. And, also, because of the success of our industry, I think we're more visible now. If we do lose our tax exemption, I do think one reason is we have been a victim of our own success. Credit unions have clearly taken a lot of market share in the retail banking space.”
And Jim Nussle, President and CEO of America’s Credit Unions, reported from the GAC that credit unions “…need to recognize that if we’re not at the table telling our story, we may definitely be on the menu.”
Credit union leaders are, of course, the first line of connection and defense when it comes to making sure the executive and legislative branches understand the role credit unions play in the economic well-being of our country. But at 140 million strong, credit union members have an essential role to play, too. And it’s up to credit union marketers to give them the tools and information they need to do that.
As you develop messaging around the credit union difference and the benefits it brings to members and the country, here are four things to keep in mind.
1. Keep a clear focus on WIFM (what's in it for me?)
Your average member likely has little awareness of how changes in Washington could impact them—did you know only 17% of Americans are even aware of credit unions’ tax-exempt status? Get their attention by highlighting what they’re likely to lose if credit unions’ tax-exempt status disappears. After all, psychologists and behavioral economists have found most people are averse to losing something they already have. Once members understand what they “own” because of their credit union’s tax-exempt status (lower loan rates, lower fees, and dividend paybacks), they might be more interested in taking steps to help preserve the status quo.
Here are some things to consider sharing with members (many of the following come from research by America’s Credit Unions):
- How much they could lose if their credit union doesn’t have tax-exempt status: Credit unions deliver a hefty $37.1 billion in financial benefits each year—and they pass along any savings due to tax status on to their members (unlike banks, which pass them on to their shareholders). Break down what that looks like for your average member. How much are they saving on fees and better loan rates? Do you have an annual dividend giveback? How much do members receive on average? What will their annual hit be if your credit union has to pay taxes? In short, make sure members know a tax on credit unions is a tax on them.
- They’re more likely to get a loan with a credit union: Serving the underserved is in credit unions’ DNA. That means those with challenging credit histories and lower incomes are more likely to get a “yes” on their loan request from a credit union than a bank.
- The cost of getting a loan from a bank instead of a credit union: Regardless of their credit rating, consumers are likely to save big if they get their loan through a credit union. For instance, America’s Credit Unions reports a credit union mortgage will save a deep subprime member $47,263 over the life of their loan vs. a bank. And even prime and super prime consumers benefit too, saving an average of $26,934 and $28,393, respectively. Auto loans are equally impressive, especially for subprime and deep subprime borrowers who will save $9,923 and $7,359, respectively, over the life of their loans.
- Why it’s much less risky to do their banking with a credit union: In the last 20-ish years, bank failures have made headlines all too frequently, failing at 2.6x the rate of credit unions. Sure, FDIC insurance likely protected most of those banks’ customers, but the hassle and angst caused by dealing with a failure are things we’re betting most people would like to avoid.
- Branch access is better with credit unions: Although fewer members routinely go into branches today, there are times when they must. Credit union members are more likely to find one conveniently nearby: between 2014-2024, banks closed 18,839 branches while credit unions opened 509.
You’ll be happy to know members consistently have positive feelings about their credit unions. They’re more likely than bank customers to feel their credit union has positively impacted their financial well-being, is trustworthy, responsive, and cares about the local community—all things that will make it easier to get your marketing message across.
2. Point to case studies in Canada and Australia
Case studies are more helpful than conjecture. Use your marketing channels to explain what happened in other countries when credit unions lost their tax-exempt status.
For instance, research compiled by CUNA found that in Australia, the loss of credit unions’ tax-exempt status in the mid-1990s led to reduced profitability and the need to increase fees, struggles to raise capital, and an uptick in mergers and credit union failures. A similar study by NAFCU found a drastic drop in credit union numbers. There were 833 credit unions in 1973, when Australian credit unions were still tax-exempt, only 400 in 1994 (after taxation began), and just 149 in 2006.
Canadian credit unions faced similar challenges. A study by NAFCU found that once credit unions were taxed at the federal level in 1972, capital-to-asset ratios declined from 6% (1967-1971) to an average of 3.75% (1971-1976). The direct impact on consumers: reduced capital reserves meant fewer credit union loans.
3. Emphasize that credit unions will still be cooperatively owned and committed to their core mission
What if the worst-case scenario happens and U.S. credit unions are no longer tax-exempt? There’s been a fair amount of catastrophizing on the topic—including fears the credit union system will collapse because its model doesn’t work without the tax exemption and questions about whether credit unions could remain financially sound. It’s hard to say exactly what will happen, but Michael Goad (mentioned above) ran the numbers to show that credit unions would still have substantial benefits over banks.
Here are three to focus on in your communications with members.
- Credit unions will continue to serve the low-income and underserved: This mission is at the heart of the credit union difference and will remain a top credit union priority. According to this CUInsight article, the National Credit Union Administration (NCUA) has consistently found that credit unions serve a proportionately higher percentage of low-income and underserved consumers than banks do. And the NCUA reports about half of all federally insured credit unions have a low-income designation, which means they meet the following standards:
“…a credit union may be designated low-income if more than 50 percent of its members have a family income of 80 percent or less than the median family income for the metropolitan area where they live or national metropolitan area, whichever is greater, or those members who earn 80 percent or less than the total median earnings for individuals for the metropolitan area where they live or national metropolitan area, whichever is greater.” - Credit unions will still be cooperatively owned: A change in tax-exempt status won’t change the core credit union structure. Members will continue to have a voice in credit union operations, own their credit union, and receive the financial benefits of cooperative ownership (as highlighted below).
- Credit unions will still pay out benefits to members instead of shareholders: Goad’s analysis found that credit unions won’t lose their ability to return earnings to members. According to Goad, credit unions have a 0.75% structural pricing advantage over for-profit banks, but only one-third (0.25%) is because of the tax exemption. Most of the advantage (0.50%) comes from their cooperative ownership model. Credit unions retain their earnings and give them back to members in lower fees, better rates on loans and savings, and direct dividend givebacks. Banks pay out 50% of their earnings as dividends, which leaves them with less retained income to support growth.
4. Offer a clear message for your members to communicate to lawmakers
Don’t just tell members to get the word out to lawmakers about how much consumers value credit unions. Give them tools to make the task fast and easy. The Don’t Tax My Credit Union campaign is a great place to start and offers a wealth of resources. For inspiration, check out how Delta Community Credit Union urged members to get involved.
Consider creating messaging and assets specific to your credit union. Infographics and other visuals play well on social media and can help amplify your message if your members and followers share them. As an added benefit, it’s a valuable opportunity to increase brand awareness for your credit union.
As we were finishing up this article, we got word that an executive order signed by President Trump may dissolve the CDFI Fund, a crucial source of funding for community development financial institutions, which include 495 credit unions. If your credit union is CDFI-certified, this is another timely moment to activate your membership. Calculate the financial impact of CDFI funding for your community and equip your members with the information and messaging they need to speak up.
Both taxation and the elimination of CDFI funding will make it vastly more difficult for credit unions to effectively serve their communities. That said, instead of staying trapped in a cycle of reactivity, let’s ask ourselves how we can use these unwelcome developments as an opportunity to educate our members and the broader public about the vital importance of the work your credit union does, as well as the impact of the credit union movement at large.
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