Congress Will Sort Out Credit Union Rules Who Can Join Whom Will Be Center Of Debate That Begins Monday

Congress begins discussion Monday on who gets to join what credit union.

At stake are customers who banks and credit unions both covet in an increasingly competitive financial services market.

Banking officials say credit unions attract customers who should be theirs by offering all of their services without shouldering the same regulatory and tax burdens.

Credit unions maintain their services are unique, and say a recent U.S. Supreme Court decision limits consumers’ choices.

In a 5-4 ruling last month, the court said a federal agency has misinterpreted the law for 16 years, allowing job-based credit unions to accept members from unrelated companies.

The Credit Union Campaign for Consumer Choice, an industry-sponsored lobbying group, says the decision could force 20 million credit union members to find a new place to save money, write checks and get loans.

Banks, however, minimize the ruling’s effects, saying it covers only a small segment - federally-chartered credit unions.

Congress could void the court’s decision with a bill up for a hearing Monday in the House Banking Committee. The Credit Union Membership Act has more than 100 co-sponsors, including Republican Reps. Helen Chenoweth of Idaho and Linda Smith of Washington.

Rep. George Nethercutt, a Spokane Republican, has not taken a stand on the bill.

Without a new law, federal credit unions that were based on a particular business would not be allowed to add employees from new, unrelated businesses. The ruling doesn’t affect credit unions that are based on geographic boundaries or non-business associations.

In recent years, some credit unions have expanded far beyond their original bases. The Spokane Federal Credit Union, for example, originally served federal workers. Now it serves 33 unrelated employee groups, ranging from Varela and Associates, an engineering firm, to the Musicians Local union.

Under the court’s ruling, existing members could remain in their credit unions, but no additional unrelated businesses may join.

But small businesses - those with fewer than 500 employees - can’t meet federal guidelines for establishing an employee credit union.

In Washington state, that would exclude 1.4 million companies, said Gary Oakland, president and CEO of Boeing Employees’ Credit Union.

“We call on Congress to act quickly,” Oakland said.

In 1934, Congress allowed credit unions to be set up three different ways - by occupation, by associations, such as churches, or by defined geographic communities.

In 1982, the National Credit Union Administration, reinterpreted that law, opening credit unions to multiple groups. On Feb. 25, the Supreme Court said that change went beyond the scope of the original law.

The bill before the House would sanction the NCUA interpretation. Employees of small companies could join existing credit unions.

Banks and credit unions differ on the impact of the court’s decision.

Even if Congress does not pass the bill, Washington Savings League President Scott Gaspard said, few state residents will be affected.

The Savings League represents savings banks and savings and loans in the state.

Only federally chartered credit unions are subject to the Supreme Court decision, not those with state charters, he noted. In Spokane, only nine of 34 credit unions are federally chartered.

The court decision was not intended to limit choice, Gaspard said. Rather, it’s a way of forcing Congress to look at the modern role of credit unions, which have become full-fledged financial institutions. With expansion should come more responsibility, including paying taxes, he said.

Credit unions historically served a special market segment, the lower income consumer, Gaspard said. That’s no longer true.

Banks want bank-like credit unions to convert to mutual thrifts, which would let them remain depositorowned, he said. But they would lose their tax-exempt status.

Tax issues, say credit union officials, are driving the dispute.

Byron Edgett, president and chief executive officer of the Spokane Federal Credit Union, says the banks began their court fight to challenge credit unions’ nonprofit status.

“The truth is, we pay a lot of taxes, just no income taxes,” he said.

Edgett said the Supreme Court decision will not have a severe impact on Spokane Federal.

“The most significant impact is that consumers have lost the freedom of choice,” he said.

Oakland described ownership as a key difference between the two financial institutions: Credit unions are owned by members, banks are owned by shareholders.

Credit unions usually have lower fees and lower loan rates than most banks, Oakland said.

Mark Varela, of Varela and Associates, said his 11 employees get lower costs for loans and more personal service than at a bank.

He sees the ability to choose a financial institution as a “basic right” and sees no reason why employees of a small company should be forbidden to join a credit union.

, DataTimes ILLUSTRATION: Graphic: Spokane Deposits and Loans