It's time for all financial institutions to pay their fair share.

With the federal budget deficit at staggering levels and our national debt exploding, and with similar issues in the state of New Jersey, the time has come to look at both spending and tax policy in order to restore fiscal balance.

Since the 1930s, credit unions have enjoyed 100 percent federal and state tax exemptions. Credit unions were conceived for one purpose and one purpose only: to serve underserved communities. This tax exemption was intended to stimulate the formation of credit unions to serve underserved markets. In order to keep credit unions focused on underserved communities, Congress and the states expressly prohibited these tax-subsidized entities from engaging in banking activities beyond those required by these communities.

Yet, in spite of this limit, credit unions have strayed from their mission, and strayed mightily. Eighty years later, there are 167 credit unions with more than $1 billion in assets. Several of these serve areas larger than entire states. Funded with massive taxpayer subsidies, their growth is insatiable and unstoppable.

What's more, the National Community Reinvestment Coalition, an association of more than 600 community-based organizations that promote access to basic banking services, released a study in September 2009 that found banks outperform credit unions in serving underserved communities.

Is there really a need to continue such a massive taxpayer giveaway to a group whose mission is being fulfilled better by tax-paying enterprises?

Should taxpayers continue to pay for a program that was conceived 80 years ago to solve a problem that no longer exists?

For even the casual observer, it is clear that reform in this area is long overdue.

Sadly for taxpayers, credit unions riding the wave of their tax-free business model are moving in the opposite direction. Federal law caps credit unions' business lending at 12.25 percent of assets. But credit unions now say this is not enough, and they are demanding more. If credit unions get their way, they will stray still further from the underserved communities they were created to serve, and their mission to become non-taxed banks will be complete.

As if that were not enough, at the state level, credit unions are demanding access to municipal deposit accounts. Under a 1970 law, which was recently updated in 2010, New Jersey does not permit credit unions to participate in the government deposit market. The reasoning is simple: Credit unions don't pay taxes to the government, and so should not benefit from government deposits. Yet the credit unions are lobbying hard to change this reasonable rule. And if they succeed? The math is simple: more money to the credit unions' bottom line and nothing to the state treasury.

Even more, credit unions are not required to comply with the Community Reinvestment Act, which requires banks to go out of their way to serve underserved markets. The irony is massive: Tax-free credit unions, which were formed to serve underserved markets, don't have to, while tax-paying banks do.

Credit union advertisements allude to the fact that they are better than banks at banking; in fact, the credit union lobby's tag line is "Banking You Can Trust." In 2011, credit unions look like banks and act like banks; it is high time they start paying taxes like banks.

New Jersey's banks would welcome competition with credit unions for business and municipal customers; in fact, we would support these changes to the law. But first, they must do what all other Americans do - that is, pay their fair share in taxes.

John McWeeney Jr. is president of the New Jersey Bankers Association.


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