Credit Union Leader Warns Policy Changes Could Raise Costs for Struggling Borrowers

America’s Credit Unions CEO Jim Nussle replied this week to an American Banker editorial calling credit unions’ federal tax subsidy and Community Development Financial Institution (CDFI) grant eligibility unfair.

The split mirrors increasing strains between credit unions and community banks with possible fallout for credit-reliant consumers.

Nussle called the op-ed’s claims “tired calls … deeply flawed, relying on deliberate misdirection,” stressing that credit unions were expressly included in the legislation and regulations governing the CDFI Fund.

He also said, “for every dollar credit unions receive in CDFI grants, they deliver $12 in measurable community impact.” Nussle positioned credit unions as community-first lenders focused on affordable credit where traditional banks often pull back.

The Op-Ed’s Critique

Ryan Ellis of the Center for a Free Economy argued in his Aug. 22 op-ed that credit unions enjoy double benefits — federal tax exemption and taxpayer-backed CDFI grants.

“A CDFI is not an agency or instrumentality of the United States, any state or political subdivision. … Since the IRS deems federal credit unions to be government instrumentalities, the qualifications for the CDFI program and federal credit unions’ tax status appear to conflict with each other,” Ellis wrote.

He also noted that credit unions control about 65% of CDFI assets, which he argues creates an uneven playing field against community banks.

Historical Context and Competitive Stakes

Credit unions hold a unique position in consumer lending:

• In 2022, 27.0% of credit unions’ mortgage originations were to low‑income borrowers, compared to 26.1% for non‑credit unions.
  
• Before the Great Recession, banks issued 7.2 percentage points more subprime mortgages and were often likely to make those loans.
  
• Credit unions extend lower-rate auto loans to non-prime borrowers and deliver significant savings over the life of the loan, compared to banks.
  
• Credit unions’ tax-exempt status lets them operate as nonprofits and usually offer lower loan costs. Losing it could make borrowing more expensive and limit access.

The GOP’s most recent tax package preserved credit unions’ tax-exempt status, keeping the broader debate politically active.

What’s at Stake for Subprime Lending

Changes to credit unions’ tax treatment could ripple through subprime markets:

• Higher costs: Taxation could drive up loan rates, lower deposit yields, and introduce more fees, hitting weaker-credit borrowers hardest.
  
• Reduced access: CDFI grants often fund products and services designed for underserved and subprime-heavy areas; without them, options could shrink for borrowers with limited or damaged credit histories.
  
• Competitive shifts: Community banks argue current rules favor credit unions, while credit unions maintain that their nonprofit mission justifies exemptions. Losing grants could force lenders serving subprime borrowers to tighten underwriting standards.

Bottom Line

Credit unions are also active players in low-cost lending, especially for subprime customers. They enjoy economies of scale and access to products and services (e.g., payday alternative loans) that are not offered by mainstream banks.

Though their tax-free status currently stands, future regulatory control and possible policy revisions may affect the role of credit unions as that of serving subprime and underserved markets. Lenders and customers alike will need to stay informed.