CUNA has submitted for the record detailed testimony discussing the impact of the recent
Supreme Court ruling on the credit union movement, and what actions Congress should -- and
should not -- take to resolve the problem the court has created for federal credit unions serving
multiple groups. This is a summary of our testimony. We hope that the full testimony will serve
as a reference document for members of this committee in coming weeks as you consider what
course of action to take to resolve this serious problem.
I. INTRODUCTION AND OVERVIEW
A vote for legislation to reverse the Supreme Court is a vote for consumers, not against
banks. Legislation is needed as soon as possible. CUNA advocates the enactment of language
in the "Credit Union Membership Access Act" to make clear that NCUA has the authority to
allow a federal credit union to serve more than one group, as long as each group has a common
bond of occupation or association and meets NCUA's documentation standards for receiving a
charter amendment.
Credit unions are not asking for new powers. We are asking for legislative confirmation of a
reasonable agency interpretation which has benefitted millions of American consumers since the
multiple group policy was adopted in 1982.
In light of the banking industry's sixth straight year of record profits, it is difficult to see
the banking industry's all-out attack on credit unions as something other than an effort by
bank trade associations to show their political activism. But for the credit union
movement, the Supreme Court ruling -- if not reversed by Congress -- spells the demise of
certain federal credit unions, denial for millions of American consumers to credit union
services, and a major restructuring of the credit union system for years to come.
Congressional action is vital.
II. WHY IMMEDIATE CONGRESSIONAL ACTION IS NEEDED
A. There are 35 million members and eligible members from "select employee groups"
(SEGs) who need to have this issue resolved by Congress.
B. There is confusion among the public and credit union members about what is going on.
C. The uncertainty among credit unions could lead to charter conversions. Since the July
1996 Court of Appeals adverse ruling, 112 federal credit unions have applied to convert to state
charters (with 80 of them approved), and 285 multiple group FCUs have applied to convert to
federal community charters (with 83 of them approved).
D. Restoring NCUA's authority to grant multiple group memberships will not open up the
doors of credit unions to the public, regardless of what bankers might say.
E. What if Congress does nothing? Conversions are likely but would create problems. NCUA
and state regulators lack sufficient resources to handle mass conversion requests to community or
state charters quickly and efficiently. Although credit unions are mutually owned organizations,
their legal and operational structure is significantly dissimilar to mutually owned thrift
institutions.
III. CONSUMERS WILL BENEFIT BY THE ENACTMENT OF THE "CREDIT UNION
MEMBERSHIP ACCESS ACT"
A. Credit unions are unique among financial institutions. Credit unions -- whatever their size
or scope of services -- share unique characteristics as not-for-profit cooperatives. These
characteristics were succinctly outlined in the U.S. Department of Treasury's study: credit unions
are member-owned and directed; rely on unpaid volunteer boards drawn from and elected by
their membership; do not operate for profit; serve public purpose; and do have membership
limitations generally based on some affinity among members. Because of this structure, credit
unions generally offer better rates and lower fees than banks.
B. Employees of small businesses probably have the most to lose if Congress restricts credit
union access.
1. About 63% of private sector workers -- 62 million people -- work for firms with fewer
than 500 employees. These companies are too small to charter a viable credit union on their
own. For these businesses, credit union membership increasingly has been viewed as a popular
employee benefit.
2. Bankers' comments on the income of credit union members are misleading. While credit union households earn more than non-member households, credit union households earn less than bank households.
3. Congress should not be tempted to try to dictate what maximum number constitutes an
acceptable "select employee group" that can be added to an existing federal credit union.
CUNA does not believe public policy is served by capping the size of a group that may be
permitted to affiliate with an existing credit union. Our goal would be for everyone to qualify to
join a not-for-profit credit union (but that doesn't mean that everyone would qualify to join any
credit union).
C. Consumers will lose the right to choose favorable rates and fees if credit union access is
restricted. Our testimony includes charts comparing bank and credit union savings and loan
rates, as well as fees. Clearly, consumers get a better deal at credit unions. Denied choice of
credit union services, consumers will have no alternative to the higher rates and fees of banks.
IV. TAXPAYERS ARE BETTER PROTECTED BY THE ENACTMENT OF THE
"CREDIT UNION MEMBERSHIP ACCESS ACT"
This part of our testimony describes why NCUA adopted the multiple group charter policy in
1982: to protect the National Credit Union Share Insurance Fund (NCUSIF); to provide
individual federal credit unions with the flexibility to respond to changing economic conditions,
thereby providing them and the whole credit union movement greater safety and soundness; and
to ensure that all groups seeking credit union services can gain access to those services.
V. CUNA APPLAUDS THE U.S. TREASURY DEPARTMENT'S 1997 CREDIT UNION
STUDY AND SUPPORTS ITS SAFETY AND SOUNDNESS OBJECTIVES
The Treasury study shows that credit unions have never been healthier; the NCUSIF has never
been stronger; and corporate credit unions are an important element of the credit union system.
CUNA supports the principles of credit union capital standards and prompt corrective action
found in the Treasury's recommendations. It is noteworthy that Treasury does not recommend
taxing credit unions or writing down credit unions' 1% deposit in the NCUSIF.
VI. COMPETITION WILL REMAIN FAIR WITH THE ENACTMENT OF THE
"CREDIT UNION MEMBERSHIP ACCESS ACT"
A. A review of all relevant data shows that the banking industry has not been harmed by
NCUA's multiple group policy -- and is in fact flourishing. The $5 trillion banking industry
grew by $436 billion in 1997 -- a one year growth rate that exceed the entire $362 billion assets
that the credit union movement has accumulated in its 80-year history of operations. Banks
have experienced their sixth straight year of record profits, rising from $16 billion in 1990 to $59
billion in 1997. Community banks are doing extremely well too. Our testimony contains a
number of charts comparing bank and credit union data, which shows this is a "David and
Goliath" battle. Credit unions held 2% of the nation's household assets in 1980, and hold 2%
today.
B. The products and services authorized for federal credit unions are not nearly as broad
as those authorized to national banks. Our testimony compares and contrasts the credit union
and bank powers involving: Deposit authority and trust services; lending authority; investment
authority; insurance activities; and securities activities. Added to credit unions' volunteer board
and one-member-one-vote structure, it becomes apparent why banks don't convert to credit
unions.
C. Business lending by credit unions is an important service to certain members and is
small by commercial banking standards. Yes, credit unions are authorized to make business
loans to their members. For some fields of membership, such as credit unions serving farmers,
fishermen, cabdrivers and low-income communities, the credit union is an essential source of
business loans. But the total business lending by the credit union movement amounts to less than
1% of credit union assets. And remember, unlike standard commercial loans, member business
loans at credit unions require the personal liability and guarantee of the principals (natural person
members) except when the borrower is a not-for-profit organization.
D. The bankers' cry that "large, bank-like credit unions should be taxed" is irrelevant to
the field of membership dispute. There is no evidence to suggest that credit unions stop
behaving like credit unions once they reach a certain size. In fact, CUNA's research shows large
and small credit unions are similar in their approach to loan rates, fees, serving members who
needs small loans, and willingness to hold small savings accounts. (And what about the 2,000
community banks expected to convert to Subchapter S status by the end of the year in order to
stop paying taxes at the corporate level?)
E. Credit unions should not be subject to the Community Reinvestment Act because by the
nature of their cooperative structure they serve the groups they are chartered to serve.
Credit unions were never part of the problem that gave rise to the CRA law, and there is no
evidence that credit unions need a new regulatory burden imposed on their operations. Any
proposal to subject credit unions to CRA looks like a "solution in search of a problem."
F. If banks feel credit unions have so many competitive advantages, why don't they just
convert to a credit union? That would be one way to "level the playing field!"
VI. CONCLUSION
This field of membership dispute is about the banking industry's efforts to capture as large a slice
of the financial pie as possible. For credit unions, this issue is about survival and consumers'
right to choose where they want to conduct their financial business. We hope that Congress will
conclude that credit unions should be allowed to continue to be of service to American
consumers, rather than punished for the services we have so faithfully rendered over the years.
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