Banks battle with credit unions as National Credit Union Day approaches

CNY Business Journal (1996+), Oct 14, 1996 by Apte, Vivek

This is no longer the case, bankers argue. They note that median annual income for members of credit unions is about $42,000. Fifty-eight percent of credit-union members are college educated. Seventy percent are homeowners. Bankers like to point out that Bill Clinton, Newt Gingrich, and the chairman of IBM are all eligible for credit-union membership.

Another change over the years has been in the meaning of the common bond definition. Bankers insist that the original idea was that there be only one, narrowly defined common bond among members. Credit unions today have an average of 18 distinct common-bond groups. Credit unions argue that this has become necessary cause of the rising number of small businesses, some of which employ fewer than 25 people. Some credit unions have upwards of 600 separate member groups. In 1994, the NCUA approved 1,900 field-of-membership expansions.

Banks took special umbrage at the activities of AT&T Family FCU in North Carolina. Noting that it conducted business from Ohio to Florida, the banks filed suit against AT&T Family FCU. The court agreed with the banks, ordering AT&T Family FCU in North Carolina to divest roughly two-thirds of its membership. Credit unions have appealed the ruling, and the Supreme Court will decide this month whether to hear the case.

Credit unions fight back

The credit unions' main defense against bankers' attacks is that credit unions are owned by their members, rather than by shareholders. Each member gets one vote, whereas with a bank, shareholders get one vote per share. What this means in practice is that the average credit-union member has far ore say in how the credit union is run than the average bank shareholder does over his bank.

Banks also complain that credit unions do not have to pay taxes, but according to J. Raymond Curtin, president of Empire FCU in Syracuse, "The bigger advantage is not having to pay shareholders." According to Curtin, "Whereas a bank needs to earn money to pay investors, our dividend is not in the form of cash, but in the form of enhanced services."

Banks also complain that credit unions are subject to far less regulation than banks are. They cite the Community Reinvestment Act (CRA), which requires banks to give a portion of their profits to social-improvement projects. Recently, bankers presented New York City Mayor Rudolf Giuliai with a $147 million check for community-improvement projects.

Credit unions argue that the reason banks are subject to CRA regulation is that they have been remiss in their social responsibilities in the past, their social responsibilities in the past, whereas credit unions' main purpose is to help alleviate problems arising from the banks' lending policies. Although denying that these practices still persist, John Pritchard, executive director of the Independent Bankers Association, acknowledges that some banks did have unfair lending practices (such as "redlining") in the past. Credit unions continue to have a better record on access to loans for minorities and low-income group.