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CREDIT UNIONS' TAX EXEMPTION COULD BE A REVENUE TARGET, CRS REPORTS.

OCT. 16, 1990

90-498 E

DATED OCT. 16, 1990
DOCUMENT ATTRIBUTES
  • Authors
    Bickley, James M.
  • Institutional Authors
    Congressional Research Service
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    credit unions
    exempt organizations, credit unions
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 90-7616
  • Tax Analysts Electronic Citation
    90 TNT 219-16
Citations: 90-498 E

Should Credit Unions Be Taxed?

                          James M. Bickley

 

                      Analyst in Public Finance

 

                         Economics Division

 

 

October 16, 1990

SUMMARY

Credit unions are financial cooperatives organized by people with a common bond. Credit unions are the only depository institutions that are exempt from the Federal income tax. Many Members of Congress advocate a reliance on market forces rather than tax policy to allocate resources. Furthermore, some Members of Congress are interested in additional sources of revenue in order to either reduce the deficit or offset the cost of higher Federal outlays. Consequently, the exemption of credit unions from Federal income taxes has been questioned. If this exemption were repealed, both federally-chartered and State-chartered credit unions would become liable for payment of Federal corporate income taxes on their retained earning but not on earnings distributed to depositors. The Congressional Budget Office (CBO) estimates that Federal taxation of credit unions would yield approximately $3.4 billion over the four year period of fiscal years 1992 through 1995.

Credit unions differ in some aspects from other providers of financial services, but financial deregulation continues to lessen these differences. Deregulation has resulted from new legislation and decisions of regulatory agencies. Among depository institutions, only credit unions may count as capital their contributions paid into their industry's Federal insurance fund. The Bush Administration has tried unsuccessfully to require credit unions to amortize their insurance contributions. The credit union industry is concerned that this proposed amortization of their insurance contribution would not only raise their costs but also reduce their distinction from other depository institutions.

Proponents of the taxation of credit unions argue that deregulation has led to vigorous competition between credit unions and other depository institutions. They maintain that the tax exemption gives credit unions an unfair competitive advantage over other depository institutions.

Opponents of taxation claim that, despite deregulation, credit unions are still unique depository institutions. They assert that the purpose of credit unions is to serve the financial needs of their members rather than to maximize profits. They argue that taxation would eliminate this service character of credit unions.

In the future, technological change and deregulation will likely further increase competition between credit unions and other depository institutions. Since many believe that an economically neutral tax system requires that depository institutions engaged in similar activities should have the same tax treatment, the income tax exemption for credit unions likely will be the subject of further debate.

TABLE OF CONTENTS

CONCEPT OF A CREDIT UNION

 

TAX STATUS

 

DEREGULATION

 

 

     TYPES OF DEREGULATION

 

     LEGISLATION

 

 

          Depository Institutions Deregulation and Monetary Control

 

            Act

 

          Garn-St Germain Depository Act

 

 

     DEREGULATION BY NCUA

 

 

          Share Accounts

 

          Chartering Guidelines

 

 

DEPOSIT INSURANCE

 

 

     BACKGROUND

 

     PROPOSED AMORTIZATION OF CONTRIBUTIONS

 

 

ARGUMENTS FOR AND AGAINST TAXATION

 

TRENDS

 

APPENDIX

 

SELECTED BIBLIOGRAPHY

 

 

Credit unions are the only depository institutions that are exempt from the Federal income tax. Deregulation is reducing the unique character of credit unions. Many Members of Congress advocate a reliance on market forces rather than tax policy to allocate resources. Furthermore, some Members of Congress are interested in additional sources of revenue in order to either reduce the deficit or offset the cost of higher Federal outlays. Consequently, the exemption of credit unions from Federal income taxes has been questioned. If this exemption were repealed, both federally-chartered and State-chartered credit unions would become liable for payment of Federal corporate income taxes on their retained earning but not on earning distributed to depositors. The Congressional Budget Office (CBO) estimates that Federal taxation of credit unions would yield approximately $3.4 billion over the four year period of fiscal years 1992 through 1995. 1 CBO estimates that taxing only credit unions with assets above $10 million would yield the same amount of tax revenue. 2 At the end of 1989, approximately 22.5 percent of credit unions had assets above $10 million. 3 The issue of taxation of credit unions is examined in this report by covering the following seven topics: concept of a credit union, tax status, deregulation, deposit insurance, arguments for and against taxation, and trends.

CONCEPT OF A CREDIT UNION

A credit union is a nonprofit financial cooperative organized by people with a common bond. A common bond is a unifying characteristic among members that distinguishes them from the general public. Every member of a credit union is an owner and may vote for credit union officers and policies. Each credit union is governed by a board of directors. The board exercises general supervision over all functional areas including membership and credit applications, interest rate policies, and records. The board elects from its membership a president, a vice-president, a secretary, and a treasurer. No elected official except the treasurer may receive any compensation. 4

Savings of members are pooled and members may borrow from this collective savings. Credit unions are either federally-chartered or State-chartered. At the end of 1989, the estimated 15,135 credit unions had an estimated 60.5 million members. 5 Total deposits at credit unions are approximately $160 billion compared with approximately one trillion dollars at saving and loans and approximately three trillion dollars at commercial banks. 6 Most credit unions are small with 46 percent having assets of less than two million dollars. 7 But some credit unions are large. Thirty credit unions have assets of over $450 million; and the Navy Credit Union, the largest credit union, has assets of over $3.9 billion. 8

The concept of a common bond is unique to credit unions. In 1970, the National Credit Union Administration (NCUA) was established by the Federal Government to regulate the credit union industry. The NCUA established policy guidelines for the categories of common bond: occupational, associational, and community. Credit union members in the OCCUPATIONAL category are employed by the same enterprise and may be geographically dispersed. Members of an ASSOCIATIONAL category belong to groups of individuals who participate in activities that develop common loyalties, mutual benefits, and mutual interests. An associational group must sponsor activities providing for contact among members. A Federal credit union may consist of a combination of occupational and associational groups. Members in the COMMUNITY category have a common bond based on employment or residence in a geographic area with clearly defined boundaries. 9 Members must recognize the geographic area "as a distinct neighborhood, community, or rural district." 10 At the end of 1988, credit unions had the following distribution of membership: 77.4 percent occupational, 16.8 percent associational, and 5.8 percent community. 11

TAX STATUS

Both State-chartered and federally-chartered credit unions are exempt from the Federal income tax regardless of whether income is distributed as dividends or held as retained earning. State-chartered credit unions have always been exempt from Federal income tax. In 1934, Congress passed the Federal Credit Union Act which authorized the chartering of Federal credit unions. This Act contained no Federal tax exemption and allowed States to tax Federal credit unions in the same manner as banks. In 1937, Congress amended the Act to exempt Federal credit unions from both Federal and State income taxes because of their service to members. 12 Until 1951, all saving and loans (S&Ls) were exempt from Federal income taxes under the same tax code provision. The Revenue Act of 1951 repealed the tax exemption for S&Ls, but the exemption for State credit unions was continued under a separate tax code provision. 13 But Congress provided S&Ls a de facto exemption from Federal income taxes by permitting a liberal allowance for bad debt reserves. This de facto exemption continued until the Revenue Act of 1962. 14

Before the passage of the Tax Reform Act of 1986, numerous specific tax preferences were given to depository institutions (except credit unions which were and are exempt). The primary justification for these tax preferences was the extensive regulations imposed on depository institutions. These tax preferences reduced the effective tax rate on operations of depository institutions below the average effective tax rate on operations of all U.S. businesses.

Proponents of the Tax Reform Act of 1986 contended that the tax system should be neutral concerning economic decision making. They believed that the market forces of supply and demand could more efficiently allocate resources than the tax system; consequently, tax preferences for specific industries or sectors should be eliminated or curtailed. They argued that the elimination or reduction of tax preferences would broaden the tax base and permit lower marginal tax rates; therefore, economic resources would be allocated more efficiently. Financial deregulation had been reducing both the differences among depository institutions and between depository institutions and other industries; consequently, the Tax Reform Act of 1986 curtailed or eliminated tax preferences of depository institutions. The three most important of these tax preferences concerned bad debt reserves, the deduction for interest to carry tax exempt obligations, and special rules for net operating losses. Currently, depository institutions (except credit unions which are tax exempt) pay an effective tax rate on income that is approximately equal to the average effective tax rate on income paid by all other U.S. corporations. 15 The more neutral Federal tax system has heightened criticism of the tax exemption of credit unions.

States are legally prohibited from taxing the income of federally-chartered credit unions. States vary in their tax treatment of State-chartered credit unions. A few States exempt State-chartered credit unions from their State income taxes. Many States tax State- chartered credit unions the same as State-chartered thrifts, and several States tax State-chartered credit unions the same as any other business. 16

DEREGULATION

Over the past 20 years, some of the distinctions between credit unions and other depository institutions have been eliminated or reduced because of deregulation; consequently, the justification for the tax exemption for credit unions has been increasingly questioned.

Proponents of deregulation argue that resources can usually be more efficiently allocated by market forces than Government regulations. They do not advocate the elimination of all regulations but rather a greater reliance on market forces. Proponents maintain that deregulation increases competition which benefits customers through better access to services at lower prices. Furthermore, deregulation leads to more integrated financial markets which improves national economic efficiency. 17 Both federally-chartered and State-chartered credit unions have been deregulated as discussed in the following section. The discretionary powers of State-chartered credit unions compared with federally-credit unions varies among States. At least twenty-nine States have laws that automatically grant their State-chartered credit unions certain new powers given to federally-chartered credit unions. 18

TYPES OF DEREGULATION

Deregulation can be divided into price, geographic, and product deregulation. PRICE DEREGULATION concerns the loosening or elimination of restrictions on interest rates that depository institutions may pay on supplies of funds and charge on loans. Price deregulation has caused credit to be rationed more by price than by availability. 19 Many individual savers have benefited from price deregulation because they have earned higher interest rates on their deposits. 20

Competition resulting from price deregulation appears to have caused some depository institutions to cover the costs of providing financial services to customers. Some criticize depository institutions for restricting access to basic financial services for low income households through the imposition of fees and requirements for minimum balances. These basic financial services include storing cash in a safe and accessible place, cashing checks including U.S. Government checks, and making payments to third parties. The alleged restriction in access to financial services has been the subject of congressional hearing and legislation. 21

GEOGRAPHIC DEREGULATION has been particularly important to commercial banks and bank holding companies which are prevented by Federal and State banking laws from offering full service interstate banking. Technological changes, such as the more efficient electronic transfer of funds, have assisted banks in offering specific financial services across State lines. Some retailers, brokerage firms, and insurance companies have nationwide distribution systems which allow them to compete against depository institutions by offering selective financial services. 22 Geographic deregulation is occurring on a State-by-State basis as individual States change their laws to allow depository institutions with headquarters in other States to open branches in their States. 23

PRODUCT DEREGULATION is blurring the distinctions among products offered by different types of depository institutions (e.g., checking accounts, credit cards, mortgages, etc.). Product deregulation has been accelerated by the mergers of some large financial and nonfinancial firms. Also, many firms have found methods of circumventing existing laws in order to offer additional financial products. 24

Deregulation has resulted in the rapid expansion of most services offered by credit unions. 25 Larger credit unions tend to offer a wider range of services. Deregulation has been implemented by legislation and the National Credit Union Administration.

LEGISLATION

Two laws have been particularly significant in implementing financial deregulation.

Depository Institutions Deregulation and Monetary Control Act

In the 1970s, greater national and international competition, technological innovations in data processing and communications, and changes in regulatory philosophy culminated in the Depository Institutions Deregulation and Monetary Control Act of 1980 (Public Law 96-221). 26 A title by title discussion of this legislation is warranted by its important effects on the credit union industry.

Title I imposed the same structure for reserve requirements on all transactions accounts of all depository institutions including credit unions. Member banks of the Federal Reserve System were given four years and nonmember institutions including credit unions were given eight years to phase in the new structure for reserve requirements. Furthermore, all depository institutions including credit unions were entitled to the same discount and borrowing privileges from the Federal Reserve. 27

Title II provided for the phaseout over six years of the limitations on the maximum rates of interest and dividends paid by depository institutions. Credit unions were not directly affected since the National Credit Union Administration retained independent authority. 28 But credit unions have been indirectly affected since this title has caused intense price competition for deposits among financial institutions.

Title III raised the interest rate ceiling on loans made by credit unions to 15 percent inclusive of all finance charges. Also provision was made for increasing the interest rate ceiling for credit unions as money market conditions dictate. 29 Titles IV through VII reduced and simplified some regulatory requirements, but did not significantly affect the competitive position of credit unions. 30

In summary, the Depository Institutions Deregulation and Monetary Control Act caused a significant change in the financial services industry by relying less on Government regulation and more on market forces. Depository institutions became less distinct from each other as they were allowed to offer additional services to customers and compete on a price basis for deposits.

Garn-St Germain Depository Act

In October 1982, the passage of the Garn-St Germain Depository Act (Public Law 97-320) further deregulated the financial services industry. Credit unions were given broader investment powers including greater freedom of activity in mortgage markets. 31 This Act also "expanded thrifts aggregate lending limit in consumer loans, commercial real estate loans, and to a limited extent commercial loans." 32 Thus, this Act fostered greater competition among depository institutions.

The Federal Reserve sets the reserve requirement for all depository institutions as a tool to control the size of the money supply. The reserve requirement for a depository institution is the legally required ratio of cash assets defined as reserves to deposit liabilities. This Act suspended monetary reserve requirements for the first two million dollars in reservable accounts for depository institutions. 33 This change was particularly important to the credit union industry because most of its member institutions were and still are small. In 1982, an estimated 95 percent of all credit unions had two million dollars or less in reservable accounts. 34

Each year, the Act requires the Board of Governors of the Federal Reserve to increase the level of exemption of reservable accounts by 80 percent of the percentage increase in the total reservable liabilities of all depository institutions. Currently, the amount of the exemption is $3.4 million. 35

DEREGULATION BY NCUA

In 1978, the National Credit Union Administration (NCUA) began a program to simplify credit union regulation. The NCUA implemented measures to provide credit unions with increased authority and flexibility in their operations. The NCUA believed that their deregulation efforts would increase competition among credit unions and between credit unions and other depository institutions, and, consequently, greater economic efficiency would occur. 36

Share Accounts

Credit unions offer three major types of accounts: the regular share account (similar to a passbook saving account), the share draft (interest-bearing account accessible by a check-like instrument), and share certificate accounts (term saving similar to certificates of deposit). 37 The NCUA completed its deregulation of all share accounts of Federal credit unions on April 27, 1982. Thus, the board of directors of each Federal credit union is responsible for setting the terms and conditions governing all share accounts. 38

Chartering Guidelines

The NCUA has deregulated chartering guidelines. These guidelines apply to a credit union's field of membership including new charters, expansions, mergers, and conversions from State to Federal charters. New regulations have eased requirements for obtaining a charter in order that more people may have an opportunity to join a credit union. New guidelines have facilitated mergers of credit unions and the takeover of financially unstable credit unions by financially strong credit unions. The deregulation of chartering guidelines has weakened the required common bond of membership. 39

DEPOSIT INSURANCE

During fiscal year 1990, a major controversy about the distinction between credit unions and other depository institutions concerned the proposed amortization of insurance contributions of credit unions. Some background on credit union insurance may be helpful in understanding this controversy.

BACKGROUND 40

The Federal insurance fund for credit unions was created by Public Law 91-468 which became Title II of the Federal Credit Union Act. Deposits of credit unions are referred to as "shares." Membership in the National Credit Union Share Insurance Fund (NCUSIF) is mandatory for federally-chartered credit unions and optional for State-chartered credit unions. Share accounts are insured up to $100,000. On June 30, 1989, there were 8,964 federally-chartered credit unions and 4,661 NCUSIF-insured, State-chartered credit unions. Assets of federally insured credit unions totalled $179.2 billion as of June 30, 1989. The State-chartered credit unions not insured by the NCUSIF are insured by State and private arrangements. Deposits in these credit unions account for approximately 10 percent of the total deposits in all credit unions.

The NCUSIF is not a corporation, it is a revolving fund maintained in the U.S. Treasury and managed by the Board of the National Credit Union Administration. The Board consists of three members appointed by the President with the advice and consent of the Senate. Each member serves a term of six years. No more than two Board members may belong to the same political party. The NCUA has a central office in Washington, D.C. and six regional offices across the country. The regional offices are responsible for examining and supervising all NCUSIF-insured credit unions. The regional offices perform the initial reviews of insurance applications. The NCUA's Office of Examination and Insurance works in coordination with the regional offices.

Members of the NCUSIF pay an annual premium of 1/12 of one percent of the total amount of the credit union's members share accounts into the Fund. The NCUA Board may levy a special assessment of up to 1/8 of one percent of share accounts. In addition to assessments, the Fund generates income from its investments (mainly U.S. Government securities). The NCUSIF has the authority to borrow up to $100 million from the U.S. Treasury in financial emergencies.

Insurance losses in the late 1970s and early 1980s threatened the Fund's solvency. Special assessments were levied in addition to the regular premiums in 1982 and 1983, without resolving the problem. The NCUA requested recapitalization legislation from Congress. Public Law 98-369 was enacted in July 1984, and Title VII of this law provided for the strengthening of the Fund. Each insured credit union was required to place a deposit with the Fund in an amount equaling one percent of its insured shares. The deposit of each credit union is adjusted annually in accordance with changes in insured shares. A new operating goal in the ratio of 1.3 percent of the Fund's capital and reserves to insured shares was established. Any amounts in excess of this level must be returned to insured credit unions in the form of a dividend. For fiscal years 1985-1989, the Fund has been maintained at or close to the goal of 1.3 percent without the annual premium. The NCUA Board has waived the 1990 premium.

PROPOSED AMORTIZATION OF CONTRIBUTIONS

Among depository institutions, only credit unions may count as capital the one percent of their deposits that they pay into their industry's Federal insurance fund. The Bush Administration argues that credit unions and the NCUSIF should not both count the same insurance contribution as assets. Hence, the Bush Administration has attempted to require credit unions to amortize their insurance contributions over an eight year period. 41

The amortization of contributions to the NCUSIF not only would raise costs to credit unions but also would reduce the distinction between credit unions and other depository institutions, and, consequently, the tax exemption of credit unions likely would receive increased scrutiny. The credit union industry has opposed the Bush Administration's proposal for amortization of contributions, and this proposal has not been adopted.

ARGUMENTS FOR AND AGAINST TAXATION

Proponents of taxation of credit unions argue that deregulation has caused extensive competition among depository institutions. These institutions actively compete for deposits by offering the best terms, including the highest rate of return to depositors. Depository institutions also compete for borrowers by offering the best loan terms including the lowest interest rates. Proponents of taxation argue that the concept of the common bond has continued to weaken. For example,

Eastern Airlines Federal Credit Union, having absorbed 27 failed credit unions, is now open to employees of more than 600 companies, including Avis Inc. and Reliance Insurance Co.; it has $850 million in assets and 20 branches in such cities as Bosten and Chicago. 42

Tax proponents maintain that vigorous competition between credit unions and other depository institutions justifies the same tax treatment for all institutions. They argue that, for market forces to allocate resources efficiently, depository institutions should have a level playing field. But the income tax exemption for credit unions gives them a competitive advantage over other depository institutions. Credit unions pay no income taxes on earnings whether distributed or retained. Credit unions can earn tax free interest on their retained earnings. Proponents assert that credit unions have lower operating costs because of their tax exemption. Consequently, credit unions can pay depositors higher rates of return and charge borrowers lower interest rates. It can be argued that the income tax exemption for credit unions has enabled them to grow more rapidly than other depository institutions.

Opponents of credit union taxation emphasize the uniqueness of credit unions compared to banks and thrifts. They maintain that credit unions are "member-driven" while other depository institutions are "profit-driven." In other words, credit unions are nonprofit organizations directed by volunteers for the purpose of serving their members.

Credit unions provide many services free or below cost in order to assist members. These services include small loans, financial counseling, and low balance share drafts. The NCUA argues that the taxation of credit unions would create pressure to eliminate these subsidized services. Furthermore, taxing credit unions would raise the cost of credit to many people without an alternative source of credit.

Concern has been expressed in Congress about the access of lower income families to basic depository services. Hearings have been held on legislation that "would require depository institutions to cash Government checks at cost for non-customers who are registered with the institution." 43 Other legislation would require depository institutions to provide basic transactions accounts that would be subject to minimal fees and balance requirements and would permit depositors to make up to ten withdrawals per month. 44 Whether or not consumer access to basic depository services is a significant problem is disputed, and Congress has not enacted any legislation.

The American Bankers Association (ABA) cites two surveys that concluded that customers of credit unions had higher average incomes, above average educational levels, and a greater representation in professional employment than customers of commercial banks. 45 Hence, the ABA argues that the credit union industry is giving a faulty image of their membership. 46

TRENDS

In the future, technological change and deregulation will likely further increase competition between credit unions and other depository institutions. It should be noted that thrift institutions were exempt from the Federal income tax until 1951. The tax exemption for thrift institutions was eliminated because Congress felt that the relationship between thrifts and their members had substantially changed. In the 1980s, the credit union industry grew more rapidly than other depository industries, and this more rapid growth may continue. Since many believe that an economically neutral tax system requires that financial institutions engaged in similar activities should have the same tax treatment, the income tax exemption for credit unions likely will occasion continuing debate.

                               APPENDIX

 

 

                               TABLE 1.

 

              DISTRIBUTION OF CREDIT UNIONS BY ASSET SIZE

 

 ______________________________________________________________________

 

                                                          Cumulative

 

   Asset Size          Number of        Percent of        Percent of

 

 ($ in Millions)     Credit Unions     Credit Unions     Credit Unions

 

 ______________________________________________________________________

 

 0.0-0.2                1,241             8.20               8.20

 

 0.2-0.5                1,754            11.59              19.79

 

 0.5-1.0                1,853            12.24              32.03

 

 1.0-2.0                2,126            14.05              46.08

 

 2.0-5.0                2,898            19.15              65.23

 

 5.0-10.0               1,856            12.26              77.49

 

 10.0-20.0              1,375             9.08              86.57

 

 20.0-50.0              1,213             8.01              94.58

 

 50.0-100.0               433             2.87              97.45

 

 100.0 and over           386             2.55             100.00

 

 Total                 15,135           100.00

 

 

      Source: Adapted by CRS from results of questionnaire published

 

 in Credit Union National Association. Credit Union Services Profile.

 

 Madison, Wisconsin, December 1989. p. 22.

 

 

                               TABLE 2.

 

                   SERVICES OFFERED BY CREDIT UNIONS

 

 ______________________________________________________________________

 

                                                   Overall Percent

 

                                                   of Credit Union

 

                                    Overall       Members in Credit

 

                                   Percent of      Unions Offering

 

 Service            Year          Credit Unions     this Service

 

 ______________________________________________________________________

 

 LOANS (Note: Only members may borrow from Credit Union)

 

 

 First Mortgage      1989                35                70

 

                     1980                12                26

 

 Second Mortgage     1989                40                81

 

                     1983                20                56

 

 Used Auto           1989                93                99

 

 Loans               1983                90                98

 

 New Auto            1989                91                99

 

 Loans               1983                87                98

 

 Auto Leasing        1989                 2                 9

 

                     1985                 1                 3

 

 Balloon Auto        1989                 5                13

 

 Loans               1984                 1                 3

 

 Home Equity         1989                26                65

 

 Loans               1982                 1                 4

 

 Guaranteed Student  1989                13                37

 

 Loans               1980                 8                35

 

 Unsecured Personal  1989                98                99

 

 Loans               1980                97                98

 

 Share Secured       1989                97                99

 

 Loans               1980                96                99

 

 Commercial          1989                 7                13

 

 Loans               1988                 8                16

 

 Home Improvement    1989                65                84

 

 Loans               1981                62                80

 

 Stock Secured       1989                23                45

 

 Loans               1985                27                47

 

 

 TRANSACTION SERVICES

 

 

 Direct Deposit

 

   Federal           1989                51                88

 

 Recurring Payments  1980                25                68

 

 Direct Deposit      1989                50                84

 

 Corporate Payroll   1980                20                54

 

 Payroll Deduction   1989                84                95

 

                     1980                87                95

 

 Preauthorized

 

   Payment           1989                28                55

 

 (Bills)             1983                15                36

 

 Receive Automated   1989                46                87

 

 Clearing House      1987                41                83

 

 Traveler Checks     1989                44                85

 

                     1980                23                65

 

 Money Orders        1989                36                70

 

                     1980                16                52

 

 Share Drafts        1989                40                85

 

                     1980                16                55

 

 Credit Card         1989                25                72

 

                     1980                 2                14

 

 Debit Card          1989                 5                21

 

                     1980                 0                 3

 

 Automated Teller    1989                19                68

 

 Machines Access     1980                 1                10

 

 

 INSURANCE (Note: Credit Unions may not underwrite insurance but may

 

 negotiate special deals for their members with insurance companies.)

 

 

 Life Savings

 

   Insurance         1989                74                61

 

                     1980                84                77

 

 Member Paid Credit

 

   Life              1989                42                72

 

                     1980                15                31

 

 Member Paid Credit  1989                68                86

 

 Disability          1980                46                60

 

 Loan Protection     1989                79                66

 

 Insurance           1980                91                80

 

 Life Insurance      1989                24                42

 

                     1980                19                31

 

 Auto Insurance      1989                16                29

 

                     1980                14                25

 

 Home Owner's

 

   Insurance         1989                 9                20

 

                     1980                 5                11

 

 Health Insurance    1989                11                15

 

                     1980                 7                11

 

 

 MISCELLANEOUS

 

 SERVICES

 

 

 Safety Deposit

 

   Box               1989                 7                33

 

                     1982                 5                18

 

 Remedial Financial  1989                26                47

 

 Counseling          1983                30                55

 

 Service Package     1989                10                33

 

   for Retirees      1984                 6                21

 

 Special Programs    1989                 9                20

 

   for Youth         1984                 4                10

 

 Stock Broker        1989                 6                19

 

 (Note: A credit     1983                 1                 5

 

 union may negotiate

 

 a special agreement

 

 for members with a

 

 brokerage firm and

 

 then refer members

 

 to this firm.)

 

 

Source: Adapted by CRS form Credit Union Services Profiles. Credit Union National Association. Madison, Wisconsin, December 1989. p. B1-B9.

Note: The primary data source was the CUNA Annual Yearbook Questionnaire mailed to all credit union except corporate credit unions. The data for year-end 1989 includes responses from 72.3 percent of the 15,135 credit unions in existence at that time.

SELECTED BIBLIOGRAPHY

American Bankers Association. The credit union industry: trends, structure and competitiveness (executive summary), 1989. 10 p.

Biederman, Kenneth R. and John A. Tuccillo. Taxation and regulation of the savings and loan industry. Lexington, Mass., Lexington Books, 1976. 113 p.

Board of Governors of the Federal Reserve System. Reserve requirements of depository institutions. Federal Reserve bulletin, vol. 76, no. 9, September 1990. p. A8.

Credit Union National Association. Credit union report 1988. Washington, 1989. 8 p.

___ Credit union services profile. Madison, Wisconsin, December 1989. 122 p.

Ferris, Nancy. Credit unions bank on staying tax-free. People and taxes, vol. 13, no. 11, November/December 1985. p. 6, 10.

Heaton, Gary G., and Constance R. Durham. The growing competitiveness of credit unions. New England Economic Review, May/June 1985: 19-33.

Lawmakers warn credit unions may lose tax exemption over field of membership. Daily tax report, March 7, 1989. p. G3.

Litan, Robert E. The road ahead: challenges facing the depository industry in the 1990s. Federal credit union, vol. 15, no. 1, January/February 1990. p. 16, 18.

Mason-Draffen, Carrie. Credit unions fix lending muscles. Washington post, October 14, 1989. p. F9.

Moysich, Alane K. Credit unions in the United States. FDIC working paper. September 28, 1989. 15 p.

Nash, Nathaniel C. Clouds on credit union horizon. New York times, vol. 138, no. 47,826, March 31, 1989. p. D1, D18.

National Credit Union Administration. Chartering and field of membership manual. Washington, December 1989. 72 p.

___ 1989 year-end statistics for federally insured credit unions. Washington, U.S. Govt. Print. Off., 1990. 87 p.

Pugh, Olin S. and F. Jerry Ingram. Credit unions: a movement becomes an industry. Reston, Va., Reston Publishing Company, Inc., 1984. 229 p.

The tax exemption through the ages. Credit union, January 1986. p. 9.

U.S. Congress. Consumer access to basic financial services. Hearing before the House Committee on Banking, Finance and Urban Affairs. Washington, U.S. Govt. Print. Off., 1990. 661 p.

___ Joint Committee on Taxation, (Prepared for use of the Committee on Ways and Means and the Committee on Finance). Tax reform proposals: taxation of financial institutions. Washington, U.S. Govt. Print. Off., September 12, 1985. 45 p.

U.S. Congressional Budget Office. Reducing the deficit: spending and revenue options. Washington, U.S. Govt. Print. Off., February 1990. 471 p.

U.S. Library of Congress. Congressional Research Service. Deregulation of Federal credit union share (savings) accounts and field of membership, by Pauline H. Smale. [Washington] August 18, 1982. 7 p.

___ Financial deregulation: a status report, by F. Jean Wells. [Washington] October 2, 1987. 7 p. (Report no. 87-800 E)

___ Financial deregulation in the United States: an introduction, by F. Jean Wells. [Washington] February 13, 1985. 30 p. (Report no. 85-41 E)

___ Should credit unions be taxed? by James M. Bickley. [Washington] September 18, 1989. 6 p. IB89066

___ The credit union industry by Pauline H. Smale. [Washington] January 27, 1981. 34 p. (Report no. 81028 E)

___ U.S. banks in the global economy: effects of capital, tax, and regulatory requirements, by Walter W. Eubanks, William Jackson, David L. Brumbaugh, and James M. Bickley. [Washington] June 12, 1990. 54 p. (Report no. 90-293 E)

Yang, Catherine. Credit unions may be tempting fate. Business week, no. 3,138; December 18, 1989. p. 112-113.

 

FOOTNOTES

 

 

1 U.S. Congressional Budget Office. Reducing the Deficit: Spending and Revenue Options. Washington, U.S. Govt. Print. Off., February 1990, p. 405.

2 Ibid.

3 Credit Union National Association. Credit Union Services Profile. Madison, Wisconsin, December 1989, p. 22.

4 Pugh, Olin S. and F. Jerry Ingram. Credit Unions: A Movement Becomes an Industry. Reston, Va., Reston Publishing Company, Inc., 1984, p. 7.

5 Credit Union Nation Association. Credit Union Services Preofile, p. 22.

6 Moysich, Alane K. Credit Unions in the United States. FDIC Working Paper. September 28, 1989, p. 3.

7 Table 1 in the appendix shows the distribution of credit unions by asset size.

8 National Credit Union Administration. 1989 Year-end Statistics for Federally Insured Credit Unions. Washington, U.S. Govt. Print. Off., 1990, p. 84.

9 National Credit Union Administration. Chartering and Field of Membership Manual. Washington, December 1989, p. 1-4.

10 Ibid., p. 3.

11 Credit Union National Association. Credit Union Report 1988. Washington, 1989, p. 7.

12 The Tax Exemption Through the Ages. Credit Union. January 1986, p. 9.

13 U.S. Congress. Joint Committee on Taxation, (Prepared for use of the Committee on Ways and Means and the Committee on Finance). Tax Reform Proposals: Taxation of Financial Institutions. Washington, U.S. Govt. Print. Off., September 12, 1985, p. 43.

14 Biederman, Kenneth R. and John A. Tuccillo. Taxation and Regulation of the Savings and Loan Industry. Lexington, Mass., Lexington Books, 1976, p. 5.

15 U.S. Library of Congress. Congressional Research Service. U.S. Banks in the Global Economy: Effects of Capital, Tax, and Regulatory Requirements, Report no. 90-293 E, by Walter W. Eubanks, William Jackson, David L. Burmbaugh, and James M. Bickley. Washington, June 12, 1990, p. 36.

16 Pugh p. 51-52.

17 U.S. Library of Congress. Congressional Research Service. Financial Deregulation in the United States: An Introduction, Report no. 85-41 E, by F. Jean Wells, Washington, February 13, 1985, p. 1-2.

18 Moysich p. 7.

19 U.S. Library of Congress. Congressional Research Service. Financial Deregulation in the United States: An Introduction. Report no. 85-41 E, by F. Jean Wells, Washington, p. 11-15.

20 U.S. Library of Congress. Congressional Research Service. Financial Deregulation: A Status Report. Report no. 87-800 E, by F. Jean Wells, Washington, p. 3.

21 For a discussion of this issue see: U.S. Congress. Consumer Access to Basic Financial Services. Hearing before the House Committee on Banking, Finance and Urban Affairs. Washington, U.S. Govt. Print. Off., 1990. p. 661.

22 Financial Deregulation in the United States: An Introduction, p. 17-20.

23 Financial Deregulation: A Status Report, p. 3.

24 Financial Deregulation in the United States: An Introduction, p. 21-26.

25 Table 2 in the appendix shows the increase or decrease in the offering of different services as measured by both the overall percent of credit unions and the overall percent of members in credit unions offering these services.

26 Pugh, p. 71.

27 Ibid., p. 72-73.

28 Ibid., p. 73.

29 Ibid., p. 73.

30 For an explanation of the contents of titles IV through VII.

31 Pugh, p. 191.

32 Heaton, Gary G., and Constance R. Durham. The Growing Competitiveness of Credit Unions. New England Economic Review, May/June 1985, p. 23.

33 Pugh, p. 191.

34 Ibid.

35 Board of Governors of the Federal Reserve System. Reserve Requirements of Depository Institutions. Federal Reserve Bulletin, vol. 76, no. 9, September 1990, p. A8.

36 U.S. Library of Congress. Congressional Research Service. Deregulation of Federal Credit Union Share (Savings) Accounts and Field of Membership, by Pauline Smale. Washington, August 18, 1982, p. 1-2.

37 Ibid., p. 3.

38 Ibid., p. 3-4.

39 For a discussion of chartering guidelines, see: National Credit Union Administration. Chartering and Field of Membership Manual.

40 The four paragraphs in this section were contributed by Pauline Smale, Economic Analyst, CRS Economics Division.

41 Lawmakers Warn Credit Unions May Lose Tax Exemption Over Field of Membership, Daily Tax Report, March 7, 1989, p. G3.

42 Yang, Catherine; Laura Jereski, and David Greising. Credit Unions May Be Tempting Fate. Business Week, No. 3,138, December 18, 1989, p. 112.

43 Statement of Martha R. Seger in U.S. Congress. Consumer Access to Basic Financial Services, p. 103.

44 Ibid.

45 American Bankers Association. The Credit Union Industry: Trends, Structure and Competitiveness (Executive Summary), 1989, p. 2-4.

46 Ibid., p. 2-3.

DOCUMENT ATTRIBUTES
  • Authors
    Bickley, James M.
  • Institutional Authors
    Congressional Research Service
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    credit unions
    exempt organizations, credit unions
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 90-7616
  • Tax Analysts Electronic Citation
    90 TNT 219-16
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