When most people think of nonprofits, they often envision charitable organizations like the American Red Cross or the Salvation Army, hospitals and churches, or maybe even think tanks like the Market Institute. Now, imagine discovering that instead of furthering the public welfare, a nonprofit was slapping their name on a sports stadium or figuring out new ways to churn even more “profit”.
Most nonprofit organizations have a legally approved purpose or social cause beyond generating profit. Because its income is invested back into the organization, nonprofits are tax-exempt organizations. When nonprofits are granted this tax-exempt status, the federal government requires that most of these groups file a Form 990, which discloses executive compensation, lobbying expenses, and other information to prove the organization is operating in compliance with the nonprofit regulations. Nonprofits are required to file this form annually, however, churches, religious organizations, and federal credit unions get a free pass.
Churches and government are a touchy subject, but credit unions shouldn’t be. It is questionable if credit unions should be nonprofits, but what isn’t controversial is that for too long, federal credit unions have been unfairly granted more advantages than most nonprofit organizations.
Many credit unions are now operating more like the largest banks in the country, and less like nonprofits. The solution to this problem is two-fold: the IRS should require them to file a Form 990, just like other nonprofits, and Congress should utilize its oversight powers to hold hearings that reexamine their tax exemption. Why should the American public have transparency into most nonprofits, except the ones that have billions in assets and act exactly like banks?
The last hearing Congress conducted on the topic of credit unions’ tax exemptions was 20 years ago, in 2005. In 20 years, a lot can change. Navy Federal Credit Union, for example, had 2.5 million members and $24 billion in assets under management in 2005. They now boast over 14 million members and $190 billion in assets, which is on par with the 22nd largest bank in the country. That’s nearly a 700 percent increase in assets and 500 percent increase in members over 20 years.
When originally established, it made sense for federal credit unions to be given tax breaks and nonprofit status. The original justification was that they served low-income communities and restricted membership to a limited scope. But that criteria is no longer true, as exemplified by Navy Federal.
Not only are federal credit unions large institutions with, at times, millions of members, but they are also using their resources for extravagant marketing purposes that go beyond their original purpose.
More and more credit unions are spending millions of member resources on naming rights to sports stadiums. Take Northwest Federal Credit Union and the Washington Commanders as an example. Or Flagler Credit Union and Florida Atlantic University as another. All across the country, you can find more and more cases like this.
While state-chartered credit unions have to file 990s, which have revealed some executives raking in multi-million dollar salaries, just imagine what the executive compensation looks like for federal credit unions that don’t have to reveal this information.
According to 990s, here are just a few examples of what these state-chartered credit union executives brought in post-bank acquisition: Sound Credit Union’s CEO made just over $4 million, Achieva Credit Union’s CEO made over $5 million, Wings Financial Credit Union’s CEO made just under $10 million, and FAIRWINDS’ CEO raked in nearly $11 million. Keep in mind that these are executives of “nonprofits.” These CEOs likely deserve these high salaries, but federal taxpayers shouldn’t be footing the bill for their salaries.
If Congress uses its oversight authority to take a closer look at credit unions’ tax status, there's no chance lawmakers can examine these facts and come to the conclusion that these are the same nonprofit organizations they were established to be. If do-good organizations like St. Jude’s have to disclose their financials, then so should these banks in disguise. And if banks have to pay taxes, then so should credit unions. It’s as simple as that.
Credit unions are not the same mom and pop nonprofits they once were – helping the unbanked get a start. It’s time for Congress to pull back the curtain and take these salaries off the backs of taxpayers.