Bair Op-Ed Criticizing the CU Tax Exemption Is Misleading and Biased

Sheila Bair’s recent opinion piece in The Washington Post misrepresents the fundamental role of credit unions, their tax-exempt status and their impact on financial services. Her arguments reflect a biased perspective favoring banks, which have long sought to eliminate competition from credit unions despite enjoying their own advantages, including government bailouts, tax loopholes and significant regulatory benefits. The Defense Credit Union Council (DCUC), representing the credit unions that serve military members, veterans and their families, strongly refutes these claims and presents the following facts.

1. Credit unions are not “abusing their tax status” – they fulfill a unique consumer-centric mission.

Fact: The tax exemption for credit unions is not a subsidy but a recognition of their member-owned, not-for-profit structure. Unlike banks, credit unions do not issue stock, do not pay dividends to outside investors and reinvest earnings directly into member benefits such as better rates, lower fees and financial education.

The Federal Credit Union Act of 1934 granted tax exemption to credit unions precisely because they exist to serve their members rather than generate shareholder profit (12 U.S.C. Â§ 1768).
A 2017 report by the National Association of State Credit Union Supervisors (NASCUS) found that credit unions return over $12 billion annually to their members in the form of lower fees and better interest rates.

Bair ignores that community banks also receive significant tax advantages, such as Subchapter S status and the use of real estate investment trusts (REITs) to shield income. Banks, unlike credit unions, also benefitted from hundreds of billions in taxpayer-funded bailouts (e.g., TARP). The notion that credit unions alone receive favorable tax treatment is both misleading and hypocritical.

2. Credit unions continue to serve their target demographics.

Bair incorrectly implies that credit unions have abandoned their mandate to serve modest-income communities. This claim is patently false.

According to CUNA, now America’s Credit Unions, over 70% of all credit union branches are located in low- or moderate-income areas, compared to just 50% of banks (CUNA Advocacy Brief, 2023).
A 2022 study by the Filene Research Institute found that credit unions provide 20% more small-dollar loans ($500 to $5,000) than banks, often at significantly lower rates than payday lenders or alternative financial institutions.
Defense credit unions specifically serve military families, who face unique financial challenges, including frequent relocations, deployment hardships and predatory lending risks. Without credit unions, many service members would be left with fewer affordable financial options.

3. Banks selling to credit unions are a symptom of banking industry weakness, not credit union overreach.

Bair claims that credit unions are gobbling up banks, but fails to acknowledge that bank owners willingly sell to credit unions because it is often the best option for their customers and employees.

The Government Accountability Office (GAO) 2022 report found that community banks are increasingly struggling with profitability and see credit union sales as an attractive option to maintain service for their local communities.
Since 2012, only 0.3% of total banks in the U.S. have been acquired by credit unions, compared to thousands of bank-on-bank acquisitions (GAO, 2022). If Bair is truly concerned about community bank survival, she should focus on large commercial banks swallowing up small banks, rather than blaming credit unions for a fraction of the acquisitions.

In many cases, credit unions preserve community-based financial services that would otherwise disappear due to bank consolidations, mergers or failures. Unlike big banks, credit unions don’t close branches simply because they are less profitable in rural or underserved areas.

4. Credit unions have not engaged in abuses that required the Community Reinvestment Act (CRA).

Bair argues that credit unions should be subject to the Community Reinvestment Act (CRA), conveniently ignoring the fact that CRA was implemented to prevent banks from discriminatory lending practices. Credit unions have never engaged in the redlining and lending abuses that necessitated CRA regulation in the first place.

According to the Federal Reserve’s 2023 CRA Assessment, over 98% of banks examined had at least one CRA violation in their history. Credit unions, on the other hand, have an unmatched record of serving all income levels equitably.
The NCUA already requires credit unions to demonstrate financial inclusion, and credit unions consistently outperform banks in serving historically underbanked communities.

Furthermore, Bair highlights a single discrimination case against Navy Federal Credit Union while ignoring the hundreds of lawsuits against major banks for widespread redlining, mortgage fraud and discrimination. One case does not define an entire industry.

5. Credit unions charge lower fees and offer better rates than banks.

Bair falsely suggests that credit unions are heavily criticized for high fees, despite overwhelming data showing they offer substantially lower fees than banks.

According to the CFPB’s 2023 Report, banks charged an average overdraft fee of $35, while credit unions averaged just $15 per overdraft.
The NCUA’s 2022 Report found that credit unions save consumers over $12 billion annually by offering better loan rates, lower fees and higher deposit yields than banks.
The Credit Union Membership Benefits Report (2023) shows that a credit union member saves on average $220 per year in fees alone compared to bank customers.

Instead of acknowledging these benefits to consumers, Bair cherry-picks a few isolated criticisms while ignoring the overwhelming evidence that credit unions provide more affordable financial services than banks.

Credit Unions Are Essential, Not a Burden

Bair’s article is nothing more than a banking industry talking point designed to attack credit unions while ignoring the major advantages banks enjoy, including taxpayer-funded bailouts, regulatory loopholes and anti-competitive practices.

Credit unions remain member-owned, not-for-profit institutions that prioritize people over profits.
Defense credit unions play a critical role in supporting military members, veterans and their families.
Banking industry consolidation and excessive fees not credit unions are the real threats to financial fairness.

If policymakers truly care about community-based financial services, they should be addressing bank mega-mergers, excessive fees and predatory lending, not attacking credit unions that serve 140 million Americans with lower costs and better service.

DCUC stands ready to defend credit unions against these baseless claims and urges Congress to focus on real financial equity issues, not politically motivated attacks on member-owned institutions.