Monday, June 11, 2012

Relationship Pricing and Tax Exemption

Montgomery County Employees FCU in Germantown, Maryland has unveiled a relationship pricing program.

Under its Member Value Program (MVP), a member is placed into one of four tiers based upon member’s household account balances (loans and deposits) at the end of the month.

The four tiers are:

Basic Tier, $5.00 - $7,499.99;
Sweet Tier, $7,500 - $14.999.99;
Sweeter Tier, $15,000 - $49,999.99; and
Sweetest Tier, $50,000 and up.

The more business you do with the credit union the better the deal you get with the credit union, including reduced loan rates, higher deposit rates and other benefits.

I understand that banks and credit unions are both fighting to gain a larger share of peoples' wallets and using relationship pricing is a way to gain more of that wallet.

But I believe this is an inappropriate use of the credit union tax exemption. The credit union tax exemption is tied to the credit union's mission of serving people of modest means.

However under this relationship pricing model, more of the tax subsidy goes to individuals that have higher balances with the credit union. These individuals with higher deposit and loan balances also tend to be wealthier and have higher incomes.

This is just another illustration of a misdirected tax subsidy and why the credit union tax exemption needs to be re-evaluated.


  1. KL understands the intent behind the CU industry tax-exemption better than the majority of CU professionals. Will someone please nominate KL for Hyland's NCUA Board seat.

  2. Individuals with higher deposit rates, income, and multiple credit union services are less expensive to service than smaller relationship members. Relationship pricing adjusts for this, and seems like a fair way to do it. High-level relationship costs less to maintain, so they get to keep more of the revenue the relationship generates. Smaller relationships cost more, so the CU keeps more of the revenue they generate to offset the increased cost of serving that member. Calling this a misdirection of a tax subsidy is reaching, Keith.

  3. Of course smaller relationships cost more. The charter is BASED on modest means, which is THE segment we were given. When we went beyond that, the mission changed.
    Credit unions should understand the tax jbetter. Our credit union would exchange access to capital for taxes.
    It's reaching to pretend that the bigger CUs aren't banks.



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