Americans are a generous sort, donating over half a trillion dollars each year to various charitable causes. This trait is further reflected in our public priorities, with state and local governments earmarking an additional (roughly) $1.8 trillion annually for social welfare programs. Helping the less fortunate and truly disadvantaged achieve a higher footing is a noble goal, but if one day we notice the recipient of our largesse stepping out of a shiny new Lexus in an Armani suit, well... we’d be more than justified in pulling the plug on further assistance.
This, in a nutshell, is the story of America’s credit unions, which began as small, community-based cooperatives that provided basic savings and loans to teachers, farmers, and local workers. In an effort to assist their mission, our government made credit unions tax exempt in 1937 through an amendment to the Federal Credit Union Act of 1934. And through their IRS 501(c)(1) classification, credit unions are further not required to file a form 990 as commercial banks are legally obligated to for reasons of transparency.
This framework to give credit unions a leg up worked well when they were small entities straining to serve rural customers, but today many of these entities are financial giants competing directly with commercial banks. For example, Navy Federal Credit Union holds over $190 billion in assets and provides nearly all of the same financial services as our country’s largest banks who are required to pay taxes and file an IRS Form 990.
Navy Federal, with more than 14 million members and a vast network of branches, offers credit cards, mortgages, and auto loans, much like its for-profit counterparts. American Express, as one example, with nearly $200 billion in assets, pays federal income taxes and faces rigorous oversight. Navy Federal pays nothing in federal income tax and is exempt from filing Form 990, which details a nonprofit’s finances, governance, and operations. As a result, taxpayers and Congress have little visibility into how these institutions operate.
Tax-free credit unions are now thriving at public expense, using their nonprofit status to expand beyond their original mandate of serving low and moderate income communities. As Sheila Bair, former FDIC chair, noted, many are gobbling up tax-paying community banks such as her own Maryland bank acquired by a Massachusetts credit union. This year alone, credit unions have announced eight whole-bank purchases. These deals, leveraging untaxed income, erode the $15 billion in annual tax revenue from community banks and threaten local economies, especially when remote credit unions oversee rural areas 400 miles away.
This isn’t about targeting credit unions. It’s about fairness. The credit union industry will argue their cooperative structure and member-focused mission warrant special treatment. That logic fails when you examine their scale. The top 100 credit unions hold over $1.2 trillion in assets, offering services nearly identical to banks. They enjoy a government-backed advantage, distorting the financial sector’s level playing field. This is not a free market. It is a rigged system that favors one group over another.
Congress should summon credit union executives to oversight hearings and demand answers. Why do institutions with billions in assets need a tax break designed for small cooperatives? Why are they exempt from transparency requirements and free to acquire tax-paying banks? If credit unions are truly serving their members, they should welcome scrutiny. Requiring Form 990 filings would reveal how these institutions manage their finances, ensuring they are not misusing their tax-exempt status.
Taxpayers deserve a system that rewards transparency, not secrecy. Credit unions have outgrown their small-scale roots, and their oversight must evolve. Congress must ensure these financial giants follow the same rules as other nonprofits. The bureaucratic carveout for credit unions may have made sense decades ago, but today they are the ones in the shiny new Lexus and Armani suit. It’s time to pull the plug on their special treatment and level the playing field.
