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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Court Win Could Trigger Lawmaking

The banking industry is trying to step on a tiny competitor: credit unions. On Monday, bankers urged the U.S. Supreme Court to reverse a 1982 policy that enabled credit unions to serve employees of very small businesses.

Since banks are among the nation’s biggest businesses, getting bigger and more profitable all the time, what are they complaining about? Two things:

Fairness. Banks pay taxes. Credit unions don’t.

Competition. Credit unions charge lower fees and pay higher returns than banks do. Credit union deposits are growing.

Is this bad? Decide for yourself: Banks pay taxes because they earn profits. Credit unions are nonprofit organizations, required to return their earnings to their depositors.

Banks can raise capital by issuing stock; credit unions can’t.

Banks invest their money in a wide range of commercial and real estate opportunities, nationwide. Mergers have made banks bigger and more national in scope, to a point that locally based and oriented banks are becoming a rarity.

Credit unions deal mainly with individuals - their members - who make deposits and apply for loans. This means their money tends to circulate in the localities where they are based.

In 1985, credit unions held 3.2 percent of the nation’s deposits. In 1996, they held 5.65 percent. However, the credit unions’ growth didn’t occur at the expense of banks. In 1985 banks held 64 percent of the nation’s deposits. In 1996, banks held 77 percent. Both banks and credit unions grew at the expense of savings & loans, whose market share plummeted from 33 percent in 1985 to 17 percent in 1996.

The lawsuit before the Supreme Court challenges a 1982 policy by the National Credit Union Administration. The policy allows an established credit union to offer service to groups beyond its original base. For example, the Cheney Federal Credit Union, which originally served government employees based in Cheney, now offers its services to employees at a number of small Cheney businesses: a tire store, a pizza shop, a travel agency, a drug store, a deli. These firms aren’t big enough for employees to organize their own credit unions.

If the Supreme Court rules for the banks, the 62 million Americans who work in small business will lose their access to the credit union option.

The Supreme Court will focus its decision on the usual technicalities of law. But the real issue isn’t technical; it’s whether Americans who’d like an alternative to banks should remain free to pool their money in nonprofit credit unions. Banks risk a reaction, in politics and the marketplace, if they try to flatten these small, grass-roots competitors by power of law. The law can be changed.

, DataTimes The following fields overflowed: CREDIT = John Webster/For the editorial board