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The Credit Union Difference

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The value of Credit Unions
McClatchy Employees, as well as all other credit unions, is a non-profit financial cooperative. Credit unions by their very structure are fundamentally different from banks in many ways that provide a significant benefit to consumers. Because of these differences, Congress has exempted credit unions from paying federal income taxes. Currently the banking industry is challenging the credit union tax exemption. We have created this page to help you understand the value of credit unions and the importance of the tax exemption.

Why are Credit Unions tax exempt?
Congress decided in 1937 to exempt credit unions from federal income tax because of their unique structure and role in the financial services industry. This tax exemption was reaffirmed by Congress in 1951 and again in 1998. In November 2005, the Ways and Means committee of the House of Representatives again reaffirmed the position that credit unions should not be taxed. Credit unions provide a valuable alternative to the for-profit banking system, and continue to serve consumers who have no other access to financial services.

How do consumers benefit?
Credit unions provide benefits to their members through higher dividend rates, lower interest rates on loans, and reduced fees. Credit unions also benefit all consumers by creating an environment that forces banks to compete.

How are Credit Unions different from Banks?
While some consumers may think that banks and credit unions are basically identical, there are some major differences between the two as the listings below illustrate.

Credit Unions
* Owned by their members
* Focused on serving consumers
* Not-for-profit cooperatives
* Volunteer Board and Committees
* Must be eligible to join
* Earnings are returned to members
* Pay payroll, property, and sales taxes

Banks
* Owned by their stockholders
* Focused on generating profit
* For-profit business
* Compensated Board of Directors
* Anyone can be a customer
* Profits are distributed to stockholders
* Pay federal income taxes, although some are exempt

Could credit unions lose their tax exemption?
The banking industry is asking legislators to tax credit unions. They say that the tax exemption gives credit unions an unfair advantage and is adversely affecting bank profits. If that were true, why do banks report year after year of record profits? Clearly, the credit union tax exemption has not affected bank profits and continues to help credit unions serve consumers well.

Why should Credit Unions remain tax exempt?
The facts that convinced Congress to originally grant credit unions their tax exemption remain true today. However, if credit unions lose their tax-exempt status, they will have to pass along those taxes in higher fees, higher loan rates, and lower dividends on savings.

Ultimately, a tax on credit unions is a tax on consumers!

 

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2010 McClatchy Employees Credit Union