Credit Unions Are Not Your Typical Financial Institution

House of Commons Parliament Ottawa
John Rafferty MP
John Rafferty MP

THUNDER BAY – Politics – Credit unions are not your typical financial institution.  They are democratic, membership based, and not-for-profit financial institutions that are an important part of northern and rural communities.  Unfortunately, the Harper Conservatives have chosen to raise the income tax for credit unions and will ultimately punish their members. 

Credit unions are financial institutions that work as a cooperative, are owned and controlled by their members, and where simply making money is not the purpose of their operations. Members are not just clients but shareholders of a democratically controlled institution in which every member has an equal vote in this community approach to banking.  The membership even elects their Board of Directors which is responsible for governing the institutional behaviour of the credit union. 

Government Changing Rules on Credit Unions

Credit unions have been serving members and communities throughout Canada since 1900. The first, founded by Alphonse Desjardins in Quebec (Desjardins Group), was established at a time when ordinary citizens had little access to commercial banks and the services they provided. The movement has steadily grown around the world and in Canada today there are 348 different credit unions with more than 1,760 locations that employ more than 27,000 Canadians in service of 5.3 million members.  Because there is no emphasis on generating profit and “maximizing shareholder value” credit unions are able to open branches in remote and rural areas where banks dare only put ATM’s to collect fees because there is not enough potential profit to justify the investment.

Since credit unions put the interests of their members first and do not seek to generate profit they are seen as a threat by Canada’s big banks.  

Harper Government Forgets ‘Little Guys’

Stephen Harper’s Finance Minister agrees with those underprivileged and hard done by big banks so he axed an important tax credit that credit unions have benefitted from for over forty years.  The tax credit in question was established in 1972 to help credit unions compensate for their inability to use the markets to raise capital by issuing shares, since they are owned by their members, and was initially put into place to allow for credit unions to break into a sector dominated by big banks and offer them competition to the benefit of consumers. With the elimination of this credit, small to medium size credit unions will face big challenges just to keep their doors open. The Canadians who will be most affected are those that live in northern and rural communities who depend on credit unions as their sole financial institutions. In terms of size this was a very small federal tax credit, costing the federal government just $47 million dollars last year, but that money made a huge difference to the institutions and their ability to serve their members and rural and northern communities.

Credit unions tend to serve markets where there are higher operating costs – think small and rural.  A major bank won’t invest in building a branch in these communities because there are constraints on profits.  It makes more sense for banks to finance expansion in high density urban centres where they can serves thousands of customers instead of dozens or even hundreds.  Today, there are 25 communities in Ontario where their local credit union is the only financial institution in town. Thunder Bay is home to five credit unions which have their head offices located in the city, and the area served by seven locations in total, while Rainy River and Fort Frances are served by two credit union locations each.  These and other credit unions will now have to find ways to handle the higher taxes they face, and since they are membership driven, they will have to pass down this additional cost to their members in some way (ie: fees, interest rates). 

The Harper Government has not explicitly declared war on credit unions and rural Canada, but they sure are making life more expensive and difficult for both. Like the big banks Stephen Harper’s Conservatives are ready to put profits and money ahead of the interests of customers and the public.   For our part, New Democrats like that credit unions are committed to serving their members and operate in a transparent and democratic manner.  We think credit unions deserve our admiration and support, and with a New Democrat they would get just that.

 John Rafferty MP

Thunder Bay Rainy River

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