From personal touch to community impact: Why credit union tax status matters
While traditional banks offer a one-size-fits-all approach, credit unions are rewriting the playbook—melding personalized, community-first service with agile lending solutions that not only empower local entrepreneurs but also spark broader economic revitalization in their communities.
At the recent Governmental Affairs Conference in Washington, D.C., credit union CEOs Karyn Davis and Ray Springsteen shared their vision for how tailored lending programs and strategic advocacy are driving transformative change across the industry. Their stories underscore the value of credit unions' member-centric approach—and the critical importance of preserving the tax status that makes it all possible.
A personal touch that makes a difference
Both Davis and Springsteen stressed that the credit union model is built on relationships. "Without that personal connection, our members wouldn't trust us enough to let us help them reach their financial goals," Davis, CEO of UP Federal Credit Union in North Little Rock, Ark., explained. She noted that for many credit union members-especially those who have struggled with traditional lending options—the assurance of being truly heard and helped "makes all the difference."
Meanwhile, Springsteen, CEO of Abound Credit Union in Radcliff, Ky., recounted the inspiring story of a veteran who, after decades of service, was able to launch a small business thanks to a well-structured, affordable loan.
"When we see the smile on a member's face knowing they finally have a chance to turn their dream into reality, it confirms that our approach really works," he said.
Innovative lending programs with community impact
After establishing those personal relationships, credit unions can better understand the needs facing the communities they serve. Since 1994, Community Development Financial Institutions (CDFI) Fund grants have proven to be a bipartisan cornerstone in expanding access to capital for underserved communities, driving initiatives that range from affordable housing and homeownership to small business growth and sustainable job creation.
After UP Federal Credit Union's CDFI certification in 2022, the credit union has received three grants "that have helped us increase our digital services in our neighborhood," Davis said.
These grants empower CDFI-certified institutions, including rapidly growing credit union networks, to serve millions of people nationwide by leveraging every dollar of public funding into eight dollars—and even twelve dollars in community lending—of private capital.
Over the past two years, the number of CDFI-certified credit unions has grown by 50%, reaching nearly 500 institutions that now serve over 19 million people through more than 2,800 branches nationwide.
"We're located in a very low-income neighborhood," she said. "If our credit union disappeared, it would be a banking desert for the people that live there. And so it was really important for us to have that CDFI certification so that we can develop the products and services for low-income members."
Advocacy through storytelling and data
Both Davis and Springsteen emphasized the need to balance compelling personal narratives with hard data.
"We're not just telling stories—we're presenting data that shows how many families and local businesses rely on our support every day," Davis stressed.
This dual approach is essential for influencing legislators, as it demonstrates not only that credit unions are crucial community partners but also that their tax-exempt status enables them to offer lower fees, better loan rates, and higher deposit yields. These tangible benefits-reinforced by robust member stories—make a strong case for why the industry must maintain its current tax status.
The threat of changing the tax status
While the CEOs' visions highlight the remarkable benefits credit unions provide, there is a growing discussion in policy circles about altering credit unions' federal tax status that underpins these advantages. Any move to change the tax status could have several negative impacts:
- Higher operating costs: The tax status currently allows credit unions to reinvest savings back into their members and services. If credit unions were taxed like traditional banks, their cost of capital would rise, potentially forcing them to pass on higher fees or interest rates to members—undermining the affordability that sets them apart.
- Reduced community investments: Savings from the tax status enable credit unions to fund community-oriented programs and innovative lending solutions. A change in tax status could erode these savings, reducing their capacity to support local initiatives and personalized lending programs that are vital for community revitalization.
- Competitive disadvantage: The tax status is a key factor in maintaining a level playing field with commercial banks. Losing this advantage could make it more difficult for credit unions to offer the lower-cost, member-focused services that consumers have come to expect.
The potential threats underscore that any changes to the tax status of credit unions would not only affect their financial performance but also diminish the very benefits that have allowed them to serve communities so effectively.
Looking ahead: Embracing technology and preserving the advantage
Both Davis and Springsteen agreed that embracing digital transformation is essential in today's fast-paced environment. While traditional processes can slow decision-making, investing in new technologies streamlines operations and speeds up the approval process for small loans. "When you can process a loan quickly and seamlessly, you're not just winning business-you're reinforcing trust," Springsteen noted.
While technology enables faster loan processing, credit union members are only best served while they have access to lower rates and the savings credit unions are able to provide through the credit union tax status. If the tax status were changed, credit union loans would become less accessible, with higher rates and fees.
A call to protect a proven model
Insights shared by Davis and Springsteen vividly illustrate how credit unions deliver value through a personalized, community-first approach. Their innovative lending programs not only help individuals and small business owners thrive but also fuel local economic growth. However, these benefits are underpinned by the tax-exempt status that enables credit unions to reinvest in their members and communities.
For credit union professionals and industry stakeholders, it is crucial to understand that any change to the federal tax status could have significant, negative ramifications-raising costs, curtailing community investments, and diminishing competitive advantages. Maintaining the current tax status is not just about preserving a legacy; it's about ensuring that credit unions can continue to offer the exceptional, safe, and affordable financial services that have made them a vital part of our communities.
In these challenging times, the commitment to personalized service and community empowerment must be protected—and that means defending the tax status that makes it all possible.
Discover how one credit union is engaging members and staff in advocacy with an easy-to-use tool.
Understand the credit union tax status and know how to counter common credit union myths.