Banks and credit unions have this longstanding competition over which is better. And at the heart of this rivalry are the rules under which each of them operates.
They’re subject to some of the same regulations imposed by government, but banks say credit unions have a huge unfair advantage — they are not subject to paying income tax.
“Credit unions are paying nothing in taxes while the banking industry pays a 35 to 40 percent corporate tax rate,” said ANB Bank Regional President Tom Ashley. “So when we’re running a race as bankers and competing for this business, it’s like having a 40-yard head start for the credit unions.
“That is difficult for us, as an industry, to swallow. It’s more difficult to compete with,” he said.
What that does is allow credit unions to offer loans at a lower rate than most banks and return on investments at a higher rate.
Credit unions gobble up much of the auto loan market these days, but also compete with banks for mortgage loans — and, increasingly, in the commercial real estate market.
But it’s that tax exemption that is the crux of this argument between the two financial institutions.
The Government Accounting Office recently issued a report that the feds will miss collecting about $35 billion over the next 10 years because of that tax exemption.
Jon Paukovich, Ent’s senior vice president of lending and chief lending officer, said some comparisons between banks and credit unions are invalid.
“We both operate under different regulatory environments, so it’s kind of apples and oranges in some respects,” Paukovich said. “We certainly have more restrictions in other areas. We have restrictions on member-business lending, commercial loans, certain types of investment property type loans.”
Credit unions have been around since 1934 when President Franklin Delano Roosevelt signed the Federal Credit Union Act into law. They were originally set up to serve distinct groups of people — those who worked for a certain company or educational system, for example — but those guidelines have slowly loosened and now virtually anyone can do business with a credit union.
Credit unions grew immensely in the 1970s and have blossomed in Colorado over the last few decades.
Victoria Selfridge, Ent’s vice president of corporate communications, argues that credit unions, and Ent in particular, have grown primarily because they provide good service to members.
“The bank model is typically a for-profit model, either for the benefit of the private owners of the bank or the shareholders who’ve invested in that bank,” she said. “So banks really have two audiences they need to please; they need to please their shareholders with returns and they also need to please their customers. Whereas credit unions are a not-for-profit model and so, in some ways, that helps keep us focused on relationships, on returning value to the people we’re serving.”
Ashley argues that customer service is what can separate ANB Bank and others like it from credit unions.
“We try to be very community focused and when we have a customer, we try to deepen that relationship as much as we possibly can,” Ashley said. “It’s that service level, that familiarity, understanding the business, and being a trusted advisor and taking the time to understand that person and their needs is how we win. That is the only way we win. You can walk down the street and get the same products, so what differentiates you is your people.”
Editor’s note: Read an in-depth story about the bank and credit union rivalry in the June 16 edition of the Colorado Springs Business Journal.