Opinion: Removing Credit Unions’ Tax-Exempt Status Would Be an Expensive Mistake

Even if you are not a credit union member, you want credit unions to exist. I’ve been with my big bank since my college years and can recite my checking account number as easily as I can my Social Security number. Although I have been tempted to switch over to a credit union, in some ways I don’t have to. 

Why? Because my bank (and all others) has to be a compelling alternative to credit unions. 

Business rivalry is no doubt a positive thing. It benefits everyone, but especially consumers. This very much includes financial institutions, which should constantly be on the lookout for how they can be most attractive to customers.

I imagine conversations in conference rooms with anxious executives huddled around saying things like, “Uh oh, they’re offering free checking accounts and a lower APR on credit cards and loans. We better try to match that or provide some other compelling benefit. If we don’t, they’ll walk.”

Although the meetings may not take place the same way, some customers do leave for sweeter financial pastures. 

That pressure to do better, to be more appealing than the competition, is essential. 

Credit unions can be considered the warm and fuzzy relative of banks. These not-for-profit financial institutions provide almost all of the same products that banks do, from checking and savings accounts to a wide variety of loans and investment options. Many offer credit cards too. Whatever the product, though, it usually comes with a lower cost. 

Credit unions also work with their members to help them improve their credit ratings. They have a strong educational component, and for members who are experiencing financial difficulty, they will step in with counseling and programs designed to help get them back on their feet. 

Banks are, of course, for-profit companies that are owned by stockholders. Hence, they pay taxes on their earnings to the federal and state government. A big chunk of change, to be sure. For example, Bank of America alone handed Uncle Sam $2.122 billion in 2024. 

However, because credit unions are owned and operated by their members, they are exempt from federal and state income taxes. Their profits are returned to their members in the form of lower fees, higher savings rates, and lower credit and loan rates. 

The byproduct of their existence is that it forces banks to also offer competitive loans and accounts. If they don’t, they’ll lose business to credit unions. In fact, they often do, causing some banks to claim that credit unions have an unfair advantage. 

Now President Donald Trump’s 2017 tax cuts could extend to credit unions losing their federal tax-exempt status. If successful, banks may rejoice (and the U.S. government may collect a lot more money). Consumers on the other hand would lose. 

New research illustrates the potential financial problems that could result from forcing credit unions to pay federal taxes. 

A 2025 study by Robert Feinberg and Douglas Meade illustrates how denying credit unions their federal tax exempt status would likely shrink the number of these financial institutions. That would reduce the pressure credit unions put on banks, and consumers may pay the price. The fees and interest credit union members currently avoid may increase if they have to use a conventional bank instead. According to the study, credit unions save consumers about $23 billion a year by offering preferable rates. 

Moreover, one of the most exciting features of a credit union is its mission. They help people who have financial and credit challenges fix their problems and get ahead. These may be the very same people a conventional bank would find too risky and would increase the cost of the credit product — if they offer the account at all. 

Not everyone needs a warm, helping hand. My bank, though perfectly fine, couldn’t be more utilitarian. Still, because I’ve been doing business with them for so long, our relationship has become like clockwork. It’s one of the biggest financial companies in the world, so the mobile app is top notch and wherever I go, I know I’ll be able to hit the ATM or find a branch. 

Look, credit unions aren’t for everyone, and they’re certainly not limited to financially stressed people who have credit issues. Far from it. They may cater to a certain industry, community or profession, including plenty of high net worth individuals and businesses.  

There are some downsides to credit unions, such as fewer brick-and-mortar locations than big banks and they may not be as technologically advanced. Still, this doesn’t deter approximately 140 million members of federally insured credit unions, and for good reason. 

Removing the federal tax exemption from credit unions would be a major mistake. Although it could open more opportunities for banks to absorb new customers, it would hurt millions of people who want low-cost, higher reward options. 

For-profit banks have their place and not-for-profit credit unions have theirs. Let’s keep the competition healthy, not eliminate the challengers.