and speaks for the credit union movement in the Western Hemisphere. There are more than 18,500 credit unions serving over 9 million members in the United States and Territories. Credit unions are located and operating in every State. About one-half of our credit unions function under the Federal Credit Union Act, passed by Congress in 1934, and half under State laws. Definition of a credit union: The Federal Credit Union Act defines a Federal credit union as follows: A cooperative association organized in accordance with the provisions of this chapter for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes. The definition of credit unions in the various State credit-union acts is essentially the same. Credit-union operation: Federal credit unions cannot, by law, charge more than 1 percent per month on the unpaid balance of a loan, inclusive of all charges. Generally, the maximum interest that may be charged by State credit unions is similarly limited. This rate is considerably below what commercial lenders consider profitable on small loans. The Russell Sage Foundation, which conducted monumental studies of commercial small loan agencies, found that restricting such agencies to a maximum rate of 2 percent a month resulted in either bankruptcy or defiance of the law unless additional fees for certain costs were permitted. Therefore, the Uniform Small Loan law which the Foundation helped to draft permitted a flat interest rate of 32 percent per month. This law is still the classic basis for small-loans legislation and in areas where the maximum smallloan interest rate has been significantly reduced, organizations engaged in this activity have been forced out of business or into other types of credit extension. Credit unions have been able to extend their services and function effectively within the 1 percent limitation for the following reasons: 1. Exemption from Federal and State income taxes. 2. Management by unpaid, volunteer directors and committeemen. 3. Close common bond of membership. Tax exemption: Credit unions have been exempt from taxation on income for more than 20 years. Bills intended to repeal this exemption have been introduced from time to time, but Congress has declined to take action on them, recognizing the unique, nonprofit character of credit unions. Unpaid volunteer management: Each credit union is self-managed by directors and committeemen elected by and from the membership. By law, no member of the board or of a committee may, as such, be compensated. Some 300,000 Americans volunteer their time and effort without monetary compensation every day to make possible the benefits of credit-union services to an ever-increasing number of our citizens. To tax credit unions on the savings made through this unusual, publicspirited volunteer effort would in effect be a tax upon the dedication and contribution of these individuals to the common welfare. Close common bond: A credit union may not accept members or pursue its activities outside of its field of membership. Charters are issued only where members of a group have a close common bond and have reason to know and trust each other. Only members may save in or borrow from a credit union. This provision of the law has been strictly interpreted by the administrative authorities. This common bond effectively lowers costs of operation by reducing problems of communication, expenses of investigation, and losses from uncollectible loans. Distribution of income: Because of the tax exemption, volunteer service, and close common bond, the average credit union has earnings sufficient to pay necessary expenses, set aside reasonable reserves as required by law, and return to the members a dividend of 3 to 4 percent on shareholdings. Dividends received by members are subject to individual income tax. The practice of making interest refunds to borrowers from undivided earnings has been increasing. At the end of 1956, Federal credit unions had average undivided earnings of only 4.6 percent of total liabilities. In most cases this represented an accumulation over a period of years, pointing up the fact that credit unions normally retain a very limited portion of earnings in the form of surplus. It is sound business practice to maintain a supplementary reserve sufficiently adequate to meet at least ordinary requirements and economic change as a necessary protection for the members savings. Surplus in a credit union represents additional security for the membership, not funds set aside for expansion. Aids stability of economy: Credit unions have a very definite stabilizing effect upon the economy of the community in which they operate, and hence upon the Nation. They effectively encourage thrift, thus enabling the members to weather personal or general economic stress. They are anti-inflationary since the savings of members provide the funds for loans to other members. They are a factor in causing our citizens to spend less of their income for interest and more for provident and productive purposes. By providing a convenient source of low-cost credit, credit unions are our most effective weapon for combating the evils of usury which still exist today. For millions of Americans, credit unions are a convenient place to save and a primary source of credit. For many, they represent the only place to turn to for a loan in an emergency. Credit-union position on tax status: Credit unions unanimously recognize tax exemption as vital and indispensable to the organizational structure which allows them to serve as nonprofit, self-help, voluntary associations, functioning for the benefit and welfare of their members, the community and the Nation. The many millions of Americans who have faith in and live by credit-union concepts and principles consider the tax-exempt status of credit unions as eminently just and equitable. On behalf of these many millions, the Credit Union National Association wishes to register firm opposition to any proposal to change this status. The CHAIRMAN. We thank you, Mr. Knight, for your appearance and those associated with you and the information you have given the committee. Are there any questions of Mr. Knight from this group? If not, we thank you again, sir. Mr. KNIGHT. Thank you for the opportunity. (The following letters were received by the committee:) Hon. WILBUR D. MILLS, HOUSE OF REPRESENTATIVES, Washington, D. C., January 27, 1958. Chairman, House Ways and Means Committee, Washington, D. C. DEAR WILBUR: I am taking the liberty of filing the attached letter from Mr. Charles W. Gilbert, president, Oswego City Savings Bank, Oswego, N. Y., one of my constituents, in connection with your hearings on the Curtis bill. Sincerely yours, Hon. CLARENCE E. KILBURN, CLARENCE E. KILBURN, OSWEGO CITY SAVINGS BANK, United States Congressman, Washington, D. C. DEAR MR. KILBURN: I have read many interesting articles on the Curtis bill which provides for taxing mutual savings banks on a basis equal to the taxaton of the commercial banks. And, of course, looking at it from the savings banker's point of view, many of the arguments seem to be one sided, and definitely in favor of commercial banks. It seems to me that if commercial banks want the savings bank taxed on the same basis that they are taxed, they certainly should be willing to allow the savings banks the same privileges as they enjoy relative to deposit limitations, loan privileges, and branch privileges. We are one of the savings banks that pay income tax and we are not objecting to it. However, we feel that we are being discriminated against by not being allowed many of the privileges enjoyed by commercial banks. I believe that if commercial banks want equality of taxation, they should also allow equality of privileges. I urgently request you not to support a bill which is favorable only to one type of financial institution. And this Curtis bill appears to me to be favorable to commercial banks only. Very truly yours, CHARLES W. GILBERT. The CHAIRMAN. Our next witness is Mr. Joseph Campana. Will you please give your name, address, and the capacity in which you appear, for the record? STATEMENT OF JOSEPH CAMPANA, LEGISLATIVE COMMITTEE CHAIRMAN, CREDIT UNION LEAGUE OF MASSACHUSETTS, INC. Mr. CAMPANA. I am Joseph Campana, legislative committee, Credit Union League of Massachusetts. I have with me Mr. Albert P. LaVelle, who is president of the Credit Union League of Massachusetts. The CHAIRMAN. Mr. Campana, can you complete your statement in the 5 minutes we have allotted to you, sir? Mr. CAMPANA. Yes, sir. The CHAIRMAN. Fine. Mr. CAMPANA. In order to appraise the credit union today we must go back and analyze the economic conditions which existed throughout the country prior to the inception of the credit union. At that time 98 percent of the people had to borrow money, and according to statistics, only 7 percent were able to borrow from established banking institutions; the other 93 percent had to borrow from whomever and wherever they could and at whatever rates of interest they could get. Therefore, it was not uncommon for people to pay anywhere from 36 to 42 percent interest. Citizens were continually clamoring for relief. There were all kinds of investigations by Government agencies at all levels of government and all sorts of bills in the legislatures of the country to eliminate so-called usury evils. It was so bad that the Russell Sage Foundation of New York dedicated itself to the promotion of enacting small-loan laws at simple interest of 32 percent per month, or 42 percent per annum. Conditions reached the point that in 1907 President Taft sent a commission to Europe to study the credit unions in Europe to see if they would work in the United States. In the meantime, a credit union had been organized by a Canadian journalist, Alphonse DesJardins, in Canada, to alleviate similar conditions existing there. Pierre Jay, the first commissioner of banks in Massachusetts, observing the Canadian experience, invited DesJardins to Massachusetts to help draft a bill to present to the Massachusetts Legislature. This bill was enacted in 1909 and thus Massachusetts became the first State in the United States to have a general credit union law. President Taft thought so much of this law, he wrote to all the Governors of the United States as follows: A very good law has been enacted by the State of Massachusetts allowing the incorporation of credit unions, which should furnish an example for the other States. Their establishment is generally a matter of State legislation and encouragement, their organization and management wonderfully simple, as the European experience shows, and their success is practically inevitable when the environment is congenial and where proper laws are passed for their conduct. Credit unions are strictly cooperative enterprises, restricted to definite groups. They may be employees of an industry, a fraternal organization, a geographically limited community, a racial group, or a parish. A credit union can do business only with its members. Its directors, officers, and committees serve without compensation. A majority of credit unions are given quarters in which to operate, without cost. After complying with the cost of supervisory regulations, and other costs of operation, and legally required reserves are set aside, the remainder of the earnings are paid to its members in the form of dividends or interest, or both. The dividends received by th members must be reported as income in their personal Federal income-tax returns. The credit union primary purpose is 1. To encourage its members to save, no matter how small the amount. This may be done directly by its member or by payroll deduction. Regardless of the size of savings its members feels no embarrassment because he is a part of a group with which he identifies himself. Banking hours are made convenient for members. 2. To create a credit source at reasonable rates of interest in a friendly atmosphere. 3. To educate its members in the management of money. Previous to the inception of the credit union, it was a common belief that the average man and woman were not capable of managing money. No permanent democracy can be founded on ignorance. The masses of the people must come to understand about such matters as interest, principal, and dividends. They must learn that capital is a necessary evil and that it is only the abuse of capital that is harmful. The stability of our institutions, in the long run, depends on the contentment of our people. We believe that the credit union is succeeding in this continual process of education. We believe that the credit union is a stabilizer of economic conditions. We believe that we are making more contented citizens. We believe that 98 percent of our people are inherently honest. We believe that we are teaching democracy by the fact that every member has a voice in the management of his credit union. Credit unions are not competitors of banks. They are a supplement to the banks. For instance, in Massachusetts the total assets of State-chartered credit unions are invested as follows: 1.91 percent in bank stocks, 5.4 percent in commercial accounts, 11.11 percent in cooperative banks, 1.48 percent in Federal savings and loan associations, 10.30 percent in Government bonds, 4.64 percent in savings banks, a total of 34.91 percent in banking institutions. We are accused of growing out of proportion to what credit unions were intended to be, and, therefore should not be exempt from taxation. Is this so? In Massachusetts there are 477 credit unions with total assets of $156 million. This is an average of approximately $302,000 per credit union or only about 10 percent of the assets of one of the largest Massachusetts banks. There are 1,354 State-supervised financial institutions in Massachusetts with assets of about $15 billion, and that while the number of credit unions, of the total institutions supervised, is approximately 33 percent, they have only 1 percent of the assets of all other institutions. You can see, very easily, that this refutes the accusation cast at us. These 477 credit unions have nearly 400,000 members. Conservatively, each member represents 3 members to a family, or, approximately 1.2 million Massachusetts citizens, which represents about 20 percent of the population of the State of Massachusetts. We know we have all kinds of savings institutions, but it is the institution where the fellow will save in small units because he knows the fellow who is receiving it and he does not feel embarrassed, or it is taken out of his pay each week by payroll deduction. Massachusetts has been very generous with the credit union. It has subsidized the cost of supervision. The last time we had a conference with commercial banks I think it cost the State about $122,000 a year, but they realized that they are doing something, that they are more than saving that amount of money at the State House by doing that. Now should this section of the tax be repealed, the revenue derived would be insignificant in proportion to the cost entailed in collecting and processing the tax. Bear in mind that each individual member must now report in his individual income tax return the dividends he receives from the credit union. All our credit unions are managed and operated by everyday working men and women who have limited time to give without compensation. Repealing the tax would be a hardship to the credit unions, especially the smaller credit unions, because it would necessitate keeping additional records and making reports which would increase operational costs. This might result in the liquidation of a great many credit unions and in turn create discontent. Eventually conditions might revert to those which existed prior to the inception of the credit unions. That is what I would like to emphasize here, that perhaps while we realize that the country needs more money, that by trying to impose a |