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Committee on Financial Services

United States House of Representatives

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Ms. Briles: Mr. Chairman and members of the Committee, first I would like to thank you for this invitation to appear today and tell you about how this issue affects American business and its employees who are the ultimate concern of all of us. This hearing is in the finest tradition of a free people petitioning their representative government. We want you to know we appreciate your rapid response to our plight.

In addition to the Klaussner Furniture Company of Asheboro, North Carolina, I am on the advisory board of the Business Alliance to Protect Credit Union Choice. The alliance is a coalition of more than one thousand large and small businesses and organizations dedicated to protecting the rights of employees to join existing credit unions and offer credit union membership to their employees.

I would like to provide a brief historical perspective at this time because it is a fact that the fluctuation of the American economy is what has got us into our present predicament. As you all know, the Congress of the United States in 1934 passed legislation establishing credit unions. The law limited membership to groups having a common bond.

Over a period of 48 years, credit unions multiplied and became an integral part of American life. Then, in the early 1980’s, the economy took a tumble. More than 600 plants closed in 1982 and 251 credit unions were liquidated in one year alone.

What about all the credit unions in those shuttered plants? The financial base was gone. How would they survive? The Federal government came to the rescue. The National Credit Union Administration decided to allow credit unions to combine with other credit unions. Edgar F. Callahan, chairman of NCUA, said their multiple group policy enabled credit unions to "take their eggs out of one basket so the credit unions won’t rise or fall with its sponsoring organization." By increasing the chances of survival, the safety and soundness of the entire credit union system was enhanced, NCUA said. It was a great move. No bailout needed here.

So credit unions continued to prosper until this current crisis developed. As we all well know, the banks challenged the 1982 action by NCUA and the Supreme Court has held that the 1934 act did not allow for multiple groups. We are before you today to ask you to change the law to allow us to continue doing what we have done for the last 16 years – add multiple groups. About 3,600 federal credit unions have at least one additional group, called a select employee group. According to a 1997 study by the Filene Research Institute and the Center for Credit Union Research at the University of Wisconsin-Madison, among these 3,600, the average credit union has 40 Select Employee Groups with an average of 72 members per Select Employee Group. That’s a total of 10.5 million of the total 44.2 million federal credit union members who could be affected by this ruling.

Now I appreciate what has been said about no one losing his or her membership in a credit union. But the big question is what about those 62 million Americans who work for small business and are not already in credit unions? Are they to be permanently barred from membership? I am talking about those 62 million Americans in small and mid-sized businesses; hardware stores, doctors’ offices, day care centers.

These groups cannot form their own credit unions – it takes at least 500 members to do that. And they are the folks who need it most because, on the average, employees of small and mid-sized firms earn significantly lower wages and are much less likely to receive health and pension benefits, the study found.

Why is a credit union good for these small businesses? Let me tell you why.

Having a credit union is one of the best benefits a company, especially a small business, can offer. Many of our people tell us it is the best. We have even started a health clinic and our workers still say: "The credit union is the best benefit you ever added – hands down."

A credit union is particularly important because in today’s marketplace, it is getting harder and harder to recruit and keep workers. And credit unions can make the kind of character loans to working families in need many other lenders won’t touch.

My favorite credit union story is about one of our young female workers who was running a rip saw. She had never finished school, was an orphan, and was always in debt. She had a good work history with us but her credit history was not good and she had to go to a loan company to finance her used vehicle. We suggested she try the credit union when the transmission went out on her vehicle. They started her off with a small loan and she made the payments, got a larger line of credit, and weaned herself off the credit company after one year. Today she is working at night and going to nursing school during the day. There is no way she could be where she is today without the credit union showing faith in her. I’m so proud of her.

Her story brings up another important point for our company. All of our workers drive to work. They have to. We don’t have any mass transit. They drive 20 miles through rain and sleet. And they need reliable vehicles. Transportation problems are unacceptable as an excuse for absenteeism. The credit union provides the small, affordable loans that enable our workers to drive good vehicles and not have to settle for a cheap vehicle that will blow up on them. And our workers feel comfortable going to a credit union when they wouldn’t have the same feeling at a bank.

Another story that illustrates a success that flowed from the 1982 NCUA policy is that of Sandy Ingerfelt of the Clinchfield Federal Credit Union of Erwin, Tennessee. Please allow me to read her story:

"Credit Unions should be there for their members when they need them most . . . before the 1982 interpretation of the 1934 Federal Credit Union Act by the National Credit Union Administration this wasn’t always possible.

"In 1974 I managed the National Casket Plant Credit Union. We had about $20,000 in assets. Few accounts held more than $500. The largest loan was $400. But we made a difference in the quality of our members’ lives. They knew if they needed 50 or 100 dollars they could get it at their credit union and get it fast. Many of our members weren’t comfortable or welcome at a local bank. They loved doing business at their credit union. We were convenient, costs were low and we treated each member the same. But disaster struck. One day at 2:45, management announced that the plant was closing and leaving town and for all employees to remove their personal items and not to come back. Worse yet the credit union had to immediately freeze assets and call all loans. When the members needed us most, we couldn’t help them. The credit union had to take vacation checks, last paychecks and severance checks. There were some instances it took all their money to pay their loan. There was nothing left to live on. Just when they needed us the most, we couldn’t help them. The credit union had to liquidate. The National Casket Plant Employees Credit Union is stored in my attic . . . helping no one.

"The next credit union I managed was Superior Hone Employees Credit Union. Very small . . . less than $10,000 in assets. Largest loan was $200. Every month when I transferred loan payments out of saving I had one little lady that would stand at my door and wait until I was finished and then ask if she could extend her loan back up to $200. She really needed that small amount of money, usually for groceries. Again, management came in and announced the closing of the plant. Again, when members needed us most, we had to freeze their savings and call their loans. Again, the credit union had to liquidate. The Superior Hone Employees Credit Union is also stored in my attic.

"In 1977 I started working at the Clinchfield Railroad Employees Federal Credit Union. Thinking the railroad would always be in Erwin, Tennessee, I never gave a second thought to what could happen if it wasn’t. Fortunately for this credit union, in 1982 the National Credit Union Administration interpreted the Federal Credit Union Act to include groups with common bonds within our membership. In 1984, Seaboard System took over Clinchfield Railroad and later merged with CSX. If not for the foresight and wisdom of the 1982 decision of the NCUA, Clinchfield Employees Federal Credit Union would also be a bittersweet memory in my attic. Instead, we have $27 million in assets and serve 4,400 members. And . . . we are there when our members need us most."

In conclusion let me say that I believe all Americans deserve the right to self-sufficiency. They can achieve this through credit unions, I have seen it work through their job. Please let it continue.


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