By Tony Hernandez
As Congress turns again to budget negotiations, what some are calling “Reconciliation 2.0”, credit unions are bracing for a familiar threat. Lawmakers hunting for offsets in a massive package may be tempted to target credit unions’ tax-exempt status, a move long pushed by bank lobbyists. I urge Congress and the administration to resist this shortsighted idea.
Reconsidering the credit union tax exemption isn’t just a line-item tweak; it’s a direct strike at millions of Americans, including our servicemembers, veterans and their families, who rely on credit unions every day.
The 90-Year Promise of Credit Unions
For more than 90 years, federal policymakers have recognized that credit unions are fundamentally different from banks. Credit unions are not-for-profit financial cooperatives owned by their members, not stockholders. They exist to serve communities, not generate profits for investors. Earnings are reinvested into members through lower loan rates, higher savings returns, and affordable financial services. This mission-driven structure is precisely why Congress granted credit unions a tax exemption in the first place—and it remains just as relevant today.
Congress even reaffirmed the importance of this model in 1998, underscoring that the tax status reflects the substantial public benefits credit unions provide. Simply put, the credit union tax status is not a “loophole” or a favor; it is a recognition of their unique role and the value they deliver to communities.
That value is extraordinary. Credit unions are one of the most successful consumer financial models ever created. By offering fair rates and putting people over profit, credit unions save American households billions of dollars each year—far outweighing any theoretical tax revenue the government might gain by taxing them. The banking lobby’s narrative that credit unions “cost” the Treasury money ignores the reality that taxing credit unions would hurt consumers and the broader economy.
In fact, a recent independent study found that eliminating the credit union tax exemption would cost the federal government $33 billion in lost tax revenue over the next decade, reduce U.S. GDP by $266 billion, and eliminate roughly 822,000 jobs over 10 years. In other words, undoing credit unions’ tax status would likely damage our economy and communities far more than it would help the federal budget.
Serving Those Who Serve Us
Nowhere is the credit union difference more apparent than in the military community. Defense credit unions—those serving on bases and catering to military families embody the “people helping people” mission every day. They serve over 40 million members, including active duty servicemembers, veterans, Coast Guard personnel, and military families worldwide. Many of these families live far from traditional banking centers or face unique financial strains of military life. Credit unions fill that gap with safe, affordable financial options and an understanding of military needs.
If Congress weakened credit unions, the result would be fewer safe options for these families and greater exposure to predatory lenders targeting our troops. We cannot let that happen.
We’ve seen the proof of credit unions’ commitment during times of crisis. When the federal government shutdown hit in the fall of 2025, credit unions across the country sprang into action. They offered furloughed federal employees and military families emergency no-interest loans, skip-a-payment plans, and fee waivers to help make ends meet.
What One Example Reveals
For example, one California defense credit union provided 0% APR relief loans up to $10,000 and even allowed affected members early access to their savings with no penalties. In Washington, D.C., while a local bank sent its customers nomessage of support, a nearby credit union immediately reached out with relief options and removed barriers to emergency funds.
This stark contrast illustrates the “credit union difference” in action. In effect, credit unions acted as the financial first responders for their communities while much of the banking sector remained comparatively quiet. Their not-for-profit, member-owned structure—focused on service, not shareholder profit—is the engine that enables this compassionate, rapid response in times of hardship.
Consider, also, the unique plight of the U.S. Coast Guard. Unlike other military branches funded through the Department of Defense, the Coast Guard’s funding flows through the Department of Homeland Security—leaving Coast Guard members uniquely vulnerable during shutdowns. In past and the current shutdown, defense credit unions stepped up to fill the gap, offering zero-interest loans, paycheck advances, skip-a-payment programs, and financial counseling to help Coast Guard families weather that storm.
These efforts were nothing short of lifelines for families who suddenly faced empty paychecks. Yet they were temporary fixes to an inequity that should never happen in the first place. No servicemember’s family should have to rely on an emergency loan from their credit union just to put food on the table during a political impasse.
The Clear Takeaway
The takeaway is clear: credit unions have always been a source of stability for military members and government employees, especially during times of crisis. Those who defend our nation deserve financial certainty and should never be used as bargaining chips in a budget standoff.
While credit unions will continue to do everything in their power to support the troops and public servants, Congress should be working to prevent scenarios that force military families into financial limbo. Altering credit unions’ tax status would do the opposite: it would undermine institutions that have proven they go above and beyond to support those who serve our nation.
The Cost of Changing Course
What would it mean if Congress bowed to the pressure and stripped credit unions of their tax exemption? Higher costs, fewer services, and weaker communities. DCUC has warned that revoking the tax exemption would inevitably lead to higher borrowing costs for families, lower returns on savings, and reduced services for members. This is especially troubling for young military families on tight budgets. An added tax burden could even force some on-base credit union branches to shut their doors, leaving servicemembers with nowhere to turn but high-cost payday lenders off-base.
The loss of on-base financial partners would directly harm military readiness – after all, financial stress is a readiness issue. Credit unions provide financial education and tailor-made products that reduce stress and strengthen the financial resilience of our troops; taxing them would diminish these critical support systems.
Let’s be clear: removing credit unions’ tax status wouldn’t help consumers or taxpayers in any meaningful way. It would simply take away a powerful competitive force that keeps big banks honest. Today, banks dominate the market and control the overwhelming majority of financial assets in the United States. Credit unions, in contrast, represent only a modest slice of the sector, yet their presence pushes banks to offer better rates and services to everyone. If credit unions are weakened, that competitive pressure eases, and consumers lose.
Even many bank customers would feel the ripple effects in the form of higher loan rates and lower deposit yields if credit unions shrank significantly. In short, taxing credit unions is a gift to a few large banking institutions, paid for by ordinary Americans.
A Call to Protect Our Communities
Unfortunately, the banking lobby understands how to work the halls of Congress. If they repeat a false claim often enough that credit unions are unfairly advantaged or “too large” someone might try to slip it into a must-pass bill at the last minute. That’s why we must stay vigilant. Congress should remember that credit unions exist for one reason: to serve people, not profit. The credit union tax status has upheld this public-service mission for decades, and it has paid society back many times over in economic and social benefits.
As the CEO of the Defense Credit Union Council and an Air Force veteran, I’ve seen firsthand the difference credit unions make. I’ve spoken with young, enlisted members who secured their first affordable car loan from a credit union when no bank would give them a second look. I’ve met military spouses who were able to start small businesses because their credit union offered guidance and micro-loans. I’ve watched credit unions rally during natural disasters and government shutdowns to ensure families can stay afloat. These stories play out in every state and district. They illustrate why more than 145 million Americans choose credit unions as their financial partners.
An Appeal to Congress
To Members of Congress, I say: please don’t put this all at risk. Preserving credit unions’ tax-exempt status isn’t about doing credit unions a favor; it’s about doing right by the American people. The last thing our communities need is for Washington to sacrifice our cooperative financial lifelines in a budget bargaining game. Credit unions have earned their tax status by delivering an invaluable public service. Undermining that would hurt military readiness, working families, and local economies—all for a dubious short-term gain.
In these contentious budget discussions, there are no easy answers. But there are some clearly wrong ones. Taxing credit unions is one of them. I urge Congress to protect the credit union tax exemption and keep faith with the millions of Americans who count on these institutions. In challenging times—from wartime deployments to government shutdowns—credit unions have had our communities’ backs. Congress should have theirs in return, not turn them into another revenue target.
Protecting credit unions’ mission-driven structure is not just sound policy, it’s a commitment to the financial well-being of our servicemembers, veterans, and neighbors on Main Street. Let’s keep it that way.
Anthony Hernandez is president and CEO of the Defense Credit Union Council.
