Credit Unions Thriving On Banks’ Home Turf Shift Into New Areas Pays Dividends For Cooperatives, Worries Bankers

As the Carswell Air Force Base shrank to the vanishing point, its credit union, set up in 1956 with $35 in assets and seven members, was growing into one of the biggest financial service providers in the Dallas-Fort Worth metropolitan area.

Nearly six years ago, the announcement that Carswell was going to be shut, a victim of the end of the Cold War, stunned the community and sent shock waves through the economy. But the announcement did not faze the Carswell Federal Credit Union. It simply changed its name to OmniAmerican and kept expanding.

Today, it counts 137,000 members employed at 1,300 businesses and organizations, ranging from the Boy Scouts of America to Pier One Imports. At the end of 1996, assets totaled $517 million, and OmniAmerican currently boasts 12 branches, from the original office at what is now the Fort Worth Joint Reserve Base to a spiffy $3 million office, complete with a baby grand player piano, abutting one of the city’s toniest residential neighborhoods.

At a time of immense turmoil in financial services, credit unions - once backwaters of American finance - have moved aggressively to supplant commercial banks in many of their traditional businesses. They pay more interest on deposits, charge less on loans and provide free many of the services that banks have tacked fees on.

All in all, America’s Depression-era experiment with financial socialism is thriving in these bullishly free-market times - and bankers don’t like it one bit. For years, they have been fighting, in the courts and in the halls of Congress, to turn back the credit unions’ invasion of their territory.

The threat to them is real: Since 1980, the cooperatives’ membership has surged to 70.4 million, from 44 million, while assets have exploded to $316 billion from $69 billion.

The conflict reached a new level last week with the Supreme Court’s announcement that it would review a lower court ruling that placed sharp limits on membership in federally chartered credit unions, which number more than 7,000. The Court is expected to hear arguments in the fall and render a ruling sometime next year.

The stakes for both sides - and for the American public - are high. Credit unions like OmniAmerican promote themselves as friends of the consumer, grass-roots organizations that offer higher interest on deposits and lower rates on loans than commercial banks.

But the banks do not see it that way. To them, credit unions are exploiting their tax-exempt status to grab market share.

Banks view their predicament as a result of the 1982 ruling by the National Credit Union Administration to allow credit unions to accept members from any number of employee groups instead of just one. The banks complain that the federal regulatory agency’s liberal reinterpretation of the Federal Credit Union Act of 1934 in effect gave credit unions carte blanche to sign up just about anyone, thereby transforming themselves into financial octopuses that threaten the banks’ livelihoods.

And the bankers’ view has found sympathy in the federal courts. Thomas P. Jackson, a Court of Appeals judge, characterized the credit union agency as a “rogue federal agency” and accused it of colluding with industry groups to evade a court order restricting credit union membership.

David L. Tapp, president and chief executive of Overton Bancshares Inc., a $760 million institution, sees the situation this way: “I think credit unions have a place in this world. But they should either be allowed to have a common bond or be forced to pay taxes and compete with us. If credit unions paid taxes and have the same regulatory burden banks do, I’ll compete with them every day of the week.”

Not surprisingly, the credit unions play on popular distrust of the banking industry as a profit machine indifferent to the needs of the little guy. “This movement is about serving people, not stockholders,” said Dan Mica, a former congressman from Florida who is now president of the Credit Union National Association, an industry group. “Our motto is people first, profit second.”