Minnesota bankers gear up for Operation Credit Unions

Northwestern Financial Review, Jul 15-Jul 31, 2004 by Bengtson, Tom

The Minnesota Bankers Association brought in the guru of the credit union issue to drive home the importance of getting involved. Speaking to 140 bankers at the MBA annual convention June 21 at Cragun's Resort near Brainerd, Keith Leggett said "we are going to have to change the world view" on credit unions, and urged bankers to help by joining the American Bankers Association's "Operation Credit Unions." Leggett is an ABA senior economist.

Operation Credit Unions is designed to show lawmakers the weight of the banking industry's interest in curbing the growth of credit unions. Bank employees are the key to success, Leggett said, noting that 1.2 million people work in banking compared to 200,000 who work in the credit union industry. He also noted that volunteerism in credit unions is declining. "If we can get our employees interested, it will make a difference," he said.

"We have them out-numbered ten to one," said ABA Chairman-elect Betsy Duke. "There is no reason we can't win this. They have been winning so far because they are the ones who show up."

Leggett said credit union assets have grown by 200 percent during the last 20 years while assets at community banks have remained flat, adjusted for inflation. In the last 10 years, credit unions have grown at an annual rate of 10.5 percent, while banks have seen growth of 7,74 percent. Leggett said if the trend continues, credit unions will constitute a larger industry by 2009; than community banks.

About half of all credit unless have less than $10 million in asgeti today, but Leggett said through growth and consolidation, credit unions are getting bigger. He said people in the credit union industry are predicting there will be no credit unions with fewer than $10 million in assets after 2010.

One of the biggest threats posed by credit unions is the industry's encroachment into business lending and services. He said 38 percent of Minnesota credit unions offer business services, mostly business checking accounts. Increasingly, however, credit unions are offering business loans, including those with SBA guarantees. He said 24 percent of the Minnesota credit unions offering business services, are making commercial real estate loans of more than $100,000. He predicted SBA lending would grow among credit unions.

Leggett said community charters have changed the way credit unions operate, taking them away from a charter devoted to serving a well-defined group of people. He cited the example of a $500 million credit union in the Minnenpolis/S.t, Paul area that sought a community charter so it could ggrve anyone in the seven-countv metro area. He said 40 percent of MinnoHota credit unions have community charters, "The competition is going te get more intense," he said,

Leggett called the emphasis on business services and community charters a "misallncatinn of the tax sub.skly." I It- fulled on bunkers to get involved in the effort to legislate changes for credit unions, The top priority, Leggett said, is to kill legislation the credit union industry is seeking which would weaken capital regulation and allow more growth in business lending.

Leggett cited the ABA's web site, which gives members the opportunity to email a letter on the issue to elected officials. "I have a goal of 50,000 letters by August 1," he said. "So far, we have 16,000."

Gary Geiger, Heritage Bank, Willmar, Minn., said he wants to see half the people in the Minnesota's banking industry write letters. Geiger, who was installed MBA's chair for 2004-2005, commented that would be 25,000 letters. Geiger said his employees already have sent such letters.

Duke said 1,000 people from her bank in Virginia already have sent letters. She said she will keep trying in her own bank, where some 13,000 people work.

Leggett said he believes the time for such a campaign is far better now than it was in 1998, when Congress overwhelmingly voted to expand credit union powers. "Things are different," he said. "A new breed of credit unions is being aggressive on growth, liberal on field of membership and eager to offer business lending." Leggett said he believes some credit unions are over-reaching aad their efforts may aome baok to haunt them.

Geiger said people in Washington are beginning te understand the bankers' Side of tho story. Ho cited commints by U,S. Rep. William Thomai (H1-OaIIf1) and FDIO Ohair Don Powell that iupport the banking industry's, position that large credit unions should be taxed, Geiger said when he visited UJ. lip, QoWn Peterson (D-Minn,) in April, a Peterscm staffer told Giipr that when credit union lobbyists eame to visit recently, "Peterson told the lobbyists they better back off or they are going to get taxed."

Beating back proposed credit union legislation now is important, Leggett said, "to prove credit unions are not invincible."

He said 99 Minnesota banks have signed up to participate in the ABA's Operation Credit Unions. Paul Pieschel, MBA president/chair for 2003-2004, called that number embarrassingly low and said, "we have a lot of areas to improve on."