Senate Bill 451: Understanding the Differences Between Credit Unions and Banks

BY: Stephen Eager

The Wisconsin State Senate is currently considering a bill to help modernize some language that no longer applies in today’s financial landscape, and therefore causes some administrative hassles for credit unions, specifically.

To be clear, we – members of the Wisconsin Bankers Association – are in support of the majority of the bill. However, there are four provisions that blur the lines between credit unions and banks that we believe should be removed for reasons that I will explain more fully below. The four provisions opposed by the Wisconsin Bankers Association include:

  1. An amendment regarding subordinated debt
  2. A provision that removes the requirement to become a credit union member in order to be a party to a credit transaction
  3. A change that allows the Office of Credit Unions to circumvent the existing rule-making process in the state
  4. An amendment that would allow credit unions to own property for any reason

Let’s take a closer look at why these four pieces of the much larger Senate Bill 451 create problems for both the industry-at-large and the general public.

The Fundamental Difference Between Banks and Credit Unions

The main difference between banks and credit unions is that banks are for-profit institutions and credit unions claim nonprofit status. The reason for that goes back to the history of why credit unions came to exist in the first place.

Credit unions formed as membership cooperatives to serve specific groups of people, such as populations with similar religious affiliations, people from the same community, or those with the same profession. Examples include members of the armed forces (USAA), Lutherans (Thrivent), and UW system alumni (UW Credit Union). In the early stages of our country’s financial system, those groups were historically underserved by traditional institutions, which is why credit unions were originally designated as nonprofits. To enjoy services from the credit union, you had to become a member.

Banks, on the other hand, are available to serve anyone and everyone. Banks can be publicly or privately owned. The goal of operations – like other for-profit businesses – is to provide products and services beneficial to customers that create profit for the shareholders and stability for clients.

Banks pay taxes. Credit unions do not.

The changes suggested in Senate Bill 451 give credit unions a significant competitive advantage by enabling them to operate much more like a bank while taking advantage of not-for-profit tax rules. 

For example, the second provision above removes the need to become a member of the credit union in some situations. In our opinion, the bill changes the role of credit unions enough that some are no longer serving the demographic they were originally chartered to help. Put another way, their scope no longer matches their mission.

The Bottom Line

Senate Bill 451 is currently under consideration by the State’s Senate Committee on Financial Institutions and Revenue. The committee is taking feedback for review, in order to make changes to the proposed legislation and submit a final version for vote.

As an industry, bankers approve of this bill once the four provisions outlined at the beginning of this article are removed. If those proposed changes are not removed, then we feel that credit unions should join banks in paying taxes.

SB 451 will be up for vote during this legislative session. If any of this information resonates with you, we ask that you contact your senator and/or assembly representative to share your feelings.

If you have any questions, feel free to email me to discuss. Thank you for helping us support our communities in partnership and cooperation!


Stephen Eager

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