Credit union group challenges bankers’ push for new tax.
The Defense Credit Union Council says a proposed tax on credit unions with more than $1 billion in assets would penalize member-owned institutions while overlooking tax advantages available to some community banks.
The Defense Credit Union Council is urging the Independent Community Bankers of America to abandon its campaign to tax credit unions with more than $1 billion in assets, arguing that the proposal overlooks how community banks are taxed and could leave credit unions with fewer resources to serve members.
In a Nov. 5 letter to ICBA President and CEO Rebeca Romero Rainey, DCUC President and CEO Anthony Hernandez challenged arguments Rainey made in a Nov. 2 commentary in American Banker. The letter addresses cooperative ownership, bank tax treatment, acquisitions, small-business and mortgage lending, transparency and the potential costs to credit union members.
“A credit union does not stop belonging to its members when it grows,” Hernandez said. “ICBA’s proposed tax would take resources from institutions owned by military families, veterans, and working Americans.”
The dispute centers on a proposal to impose federal income taxes on credit unions once their assets exceed $1 billion. DCUC argues that asset size does not change the institutions’ ownership structure or their nonprofit mission.
Hernandez also challenged what the group described as a double standard in ICBA’s tax position. The banking association has advocated for tax relief for community banks, including an exclusion for retained earnings and an expansion of an existing tax exclusion for agricultural-lending interest income.
DCUC pointed to Federal Reserve Bank of Kansas City data showing that 1,447 community banking organizations, or 38%, had elected Subchapter S tax treatment as of Sept. 30, 2024. Those banks generally pass income through to shareholders, who pay taxes on it, although certain institutional taxes can also apply.
The letter does not argue that those banks or their owners pay no taxes. Instead, DCUC says ICBA should acknowledge the tax treatment available to some banks while seeking to end the exemption that applies to credit unions.
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“ICBA defends tax advantages for bank owners while demanding that Congress strip away the tax treatment that preserves resources for credit union members,” Hernandez said.
The council also disputes ICBA’s estimate that eliminating the credit union tax exemption could generate $2.6 billion. DCUC says the hypothetical figure combines federal and state income taxes and is not an official revenue estimate for repeal legislation. It argues that lawmakers should also consider the potential effects on members, lending and institutional capital.
As evidence of differences in borrowing costs, the letter cites National Credit Union Administration data from December 2025 showing an average five-year new-car loan rate of 5.44% at credit unions, compared with 7.41% at banks.
The letter also challenges claims about credit union acquisitions of banks. Profitable bank owners may voluntarily choose to sell to a credit union, subject to regulatory approvals, DCUC said. The group argues that changes in Small Business Administration lending or mortgage denial rates do not, on their own, establish that an acquisition caused harm. It called for more disclosure of the methods and comparisons behind ICBA’s claims.
On transparency and fraud concerns, DCUC acknowledged that public credit union Call Reports do not provide all the information found in Form 990 filings. But it argued that information gaps should be addressed through disclosure requirements, internal controls and supervision, rather than by imposing an income tax.
The letter also takes issue with ICBA’s use of the failure of Jackson Area Federal Credit Union to support its broader tax campaign. The NCUA reported that Jackson Area had about $60 million in assets. Five Star Credit Union, which assumed the failed institution’s members’ share accounts, had $1.261 billion in assets.
Under ICBA’s proposed threshold, DCUC noted, the larger credit union that stepped in to preserve service would be subject to the tax, while the failed institution would have fallen below it.
The council said the proposed tax could reduce funds available for lending, reserves and assistance to members, including military families facing deployments, relocations or interruptions in pay.
The latest letter follows DCUC’s July 2025 request for Treasury scrutiny of Subchapter S banks and a 2026 letter to Congress defending credit unions’ tax status. Hernandez is asking ICBA to withdraw its $1 billion threshold, recognize tax preferences available to banks and publish the evidence supporting its claims about credit union acquisitions.
“ICBA defends tax advantages for bank owners while demanding that Congress strip away the tax treatment that preserves resources for credit union members.”
Anthony Hernandez
President & CEO
Defense Credit Union Council
Ken McCarthy is manager of marketing communications at Tyfone, where he monitors the credit union industry and contributes to conversations shaping its future. He previously covered credit unions and community banking for American Banker and S&P Global Market Intelligence. He holds a journalism degree from Point Park University and has more than 15 years of experience covering financial services. He is also the author of three literary fiction novels.
