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Committee on Financial Services

United States House of Representatives

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Key Highlights of CUNA's Testimony

H.R. 1151 is pro-consumer legislation. Legislative proposals to address the field of membership issue first and foremost must be evaluated by one simple measure: "Does the consumer benefit?" Without question, casting a vote for H.R. 1151, the Credit Union Membership Access Act, is being pro-consumer.

Millions benefit from access to credit unions. CUNA is asking for legislative confirmation of a reasonable regulatory interpretation that, since it was adopted in 1982, has benefited millions of Americans. As member-owners of financial cooperatives, consumers can take control of their financial future. Credit unions offer a unique, low-cost, not-for-profit alternative in the financial marketplace. The U.S. Treasury recently affirmed credit unions' uniqueness in a major study.

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 Treasury 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.

A large credit union is like a small credit union, not like a bank. While the banking industry often targets larger credit unions for criticism, the fact is that larger credit unions are equally as consumer-oriented and service-oriented as smaller credit unions. In fact, for some services larger credit unions are less likely to charge a fee than smaller credit unions because of their economies of scale. The important point is that credit unions, whatever their size, charge fewer and lower fees than banks.

The Supreme Court ruling cannot be allowed to stand. The Supreme Court ruling, if not reversed, spells the demise of certain federal credit unions, denial for millions of Americans of credit union services, and a major restructuring of the credit union system for years to come.

Immediate Congressional action is needed. Millions of consumers have a stake in this issue. About 10 million members have joined federal credit unions as members outside their credit unions' primary (core) sponsor group. Another 25 million are in the noncore groups but have not yet joined the credit union and now, for many, their eligibility is jeopardized.

Small-business employees probably have the most to lose. About 63% of U.S. 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. Now six out ten workers will be unable to gain credit union service through the workplace unless Congress enacts H.R. 1151.

Congress must do more than protect existing members. Simply "grandfathering" existing members of federal credit unions' noncore groups is not a viable solution. It discriminates against would-be members. And while it protects existing members, a grandfather clause would slowly "bleed to death" federal credit unions that draw most of their membership from these noncore groups. Over time, these credit unions would be unable to offer the same level of service, exacerbating membership loss and possibly raising safety and soundness concerns.

Three key reasons to enact H.R. 1151. Consumers will be helped, taxpayers will be better protected, and competition will be enhanced by enacted H.R. 1151, the Credit Union Membership Access Act. NCUA's multiple group policy-enacted during the throes of a nationwide economic recession and rampant inflation-strengthened credit unions and their federal share insurance fund. Even today, federal credit unions still benefit from the diversification that comes from serving more than one membership group.

Banks, awash in profits, have no valid reason to attack credit unions. All the relevant data show that the U.S. banking industry-enjoying its sixth straight year of record profits-has not been harmed by NCUA's multiple group policy. The banking industry is in fact flourishing, as documented in a recent General Accounting Office report. Moreover, U.S. banks have received a tremendous array of new powers from Congress and their regulators. These powers are documented in a forthcoming study by the firm of Kinzler & Swab. Yet banks, while staunch advocates of their own modernization, insist on trying to force credit unions to operate in an environment more appropriate to the 1930s than the 1990s.

Consumers want and deserve a choice. This field of membership issue is about the banking industry's efforts to capture as large a slice of the U.S. financial pie as possible. For credit unions, this issue is about survival and the right of millions consumers and small-business workers to choose where they want to conduct their financial business. Swift enactment of H.R. 1151 will allow credit unions to get back to their mission of serving America's consumers.

Good afternoon, Chairman Leach and members of the committee. My name is Rose Bartolomucci, and I am president and CEO of Kent Credit Union in Kent, Ohio. I am a member of the Board of Directors of the Credit Union National Association (CUNA) and appear today on behalf of CUNA. CUNA and our network of state credit union leagues represent over 90 percent of the nation's 11,300 credit unions and 72 million credit union members.

Thank you for calling this hearing today to discuss the impact of the recent Supreme Court decision in National Credit Union Administration (NCUA) v. First National Bank & Trust Co. et al. and the appropriate Congressional response to the Court's ruling on field of membership and related issues. CUNA obviously feels the appropriate response is the swift enactment of H.R. 1151, the Credit Union Membership Access Act. Enactment of the bill will 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.


I want to state at the outset of my testimony that a vote for H.R. 1151 is a vote for consumers, not against banks. At times my testimony may sound like I am attacking the banking industry, but I am simply trying to answer the many issues the banking industry has raised against credit unions. Most credit union members have banking relationships; in fact, many if not most credit unions have some sort of banking relationship, such as obtaining cash and currency from a local bank or holding a bank certificate of deposit.

In light of the banking industry's sixth straight year of record profits, it is hard to see the banking industry's all-out attack on the credit union movement as something other than an association's show of activism to its members. But for the credit union movement, the Supreme Court ruling -- if not reversed by Congress -- spells the demise for 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. H.R. 1151 is vital legislation.

It has been one year since CUNA appeared before this committee's Subcommittee on Financial Institutions to discuss the topic of "Issues Currently Facing the Credit Union Industry." It has been a long year as the credit union movement awaited the ruling of the U.S. Supreme Court. We are, of course, disappointed in the Court's 5-4 ruling that the banking industry's "interest in limiting the markets that credit unions can serve is 'arguably within the zone of interest to be protected' by the common bond provision in the Federal Credit Union Act," and that NCUA's interpretation of the common bond provision "is contrary to the unambiguously expressed intent of Congress and is thus impermissible...."

At least the Court's ruling makes it very clear that we need to have Congress in 1998 amend the language of the 1934 Federal Credit Union Act to allow the NCUA to continue to do what it has done for the last 16 years. Credit unions need Congress to adopt language that will allow federal credit unions to reach out to groups that otherwise will not be able to form their own credit union -- or do not want to organize a credit union -- and to allow federal credit unions to diversify their membership base so as not to present undue risks to the National Credit Union Share Insurance Fund. CUNA is not here 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.

This should be accomplished by the enactment of the simple language in H.R. 1151. Congress should avoid the temptation to try to formulate "compromises" that define what groups are too large -- or too small -- to join with an existing federal credit union. Rather, Congress should leave it to NCUA to obtain the documentation needed from groups to be added to an existing federal credit union. The Court's ruling directly affects 3,500 federally chartered credit unions that since 1982 have taken in "select group additions," according to NCUA. [These groups are often short-handed as "SEGs" -- select employee groups -- although some groups are actually associational, not occupational, in nature. The term "SEG" will be used throughout my testimony.]

I am president of a state chartered credit union, one of about 8,000 state and federal credit unions not directly affected by the lawsuit or by the field of membership rules in the Federal Credit Union Act. My appearance here today is strong evidence that all credit unions feel they have a vital interest in seeing Congress resolve the field of membership dispute as quickly as possible. The joining together of CUNA and the National Association of Federal Credit Unions (NAFCU) in the Credit Union Campaign for Consumer Choice last year formally unified credit unions throughout the country -- large and small, federal and state chartered, community and occupational -- to press for Congressional action.

Kent Credit Union has about $18 million in assets and about 5,000 members. Our credit union's "core" or primary group around which we were chartered in 1964 was employees of the Kent Public School System. ["Core" membership is another term used throughout this testimony.] About one-third of our members are drawn from the school system. Two-thirds come from about 60 SEGs we have added, which include county and city workers, postal employees, firefighters, police officers, and the faculty of Kent State University.

There have been 18 lawsuits in 13 different states filed by banks and banking associations around the country challenging field of membership since the AT&T Family FCU case was filed seven years ago. Of the 18 lawsuits, eight have involved federal credit unions, ten have involved state credit unions. One federal case (in Michigan) and four state cases (Nebraska, two in Maine and one in Texas) have been fully and finally resolved, in favor of credit unions. The money that the credit union movement is having to spend to defend lawsuits and hire lobbyists is money that otherwise would be flowing into members' pockets as dividends on their savings. Credit unions believe that Congressional action to resolve the field of membership dispute at the federal level will send a strong message to the banking industry to stop this harassment.

All credit unions also want to see this issue properly resolved so there is no turbulence in the balance we have achieved over the years in the dual chartering system, a system that Congress has supported for many decades. Today, about 7,000 credit unions hold federal charters, and 4,500 hold state charters. There is no constructive purpose served in having credit unions re-examine their type of charter merely because of the banking industry's attacks. Moreover, these attacks will only grow at the state level unless a clear Congressional message of "enough" is heard.

In preparing for this testimony, we reviewed the extensive record created in February 1997 at Congresswoman Roukema's hearing. We will build upon, not repeat, many of the points made by the credit union witnesses last year. At the very end of last year's hearings, Chairman Leach observed that this membership dispute has arisen from the banking industry's complaints about credit unions' success. The information that we will present in our testimony today is that credit unions have been successful, which means American consumers have been the direct beneficiaries of that success. Moreover, we will document that banks have not been competitively harmed by the credit union movement, as measured by evidence of the banking industry's growth and profitability.

Mr. Chairman, last year you told us that if legislation became necessary, it should be based on four principles. The four principles you enumerated were:

o All sides must be given a fair opportunity to be heard.
o Consumers must benefit.
o Taxpayers must be protected.
o Competition must be fair.
We think those are reasonable principles upon which to evaluate H.R. 1151 and other bills being introduced to address the Supreme Court's adverse ruling, so we have chosen to organize our testimony around those four points in order to persuade the committee to vote H.R. 1151 out of committee as soon as possible.


We are confident that this committee and all members of Congress will give everyone a fair opportunity to be heard. We are concerned, however, that there could be unnecessary delays in moving ahead with sending a credit union bill to the full House and by having the credit union field of membership issue entangled in the many complex issues that this committee has had under consideration for several years.


There are three reasons why this committee needs to act soon:

1. There are a large number of potentially affected credit union members who need to have this issue resolved by Congress.

We do not yet know how the lower courts will implement the Supreme Court's ruling, but there are two groups of current members whose future credit union membership is in jeopardy. The first is the approximately 10 million members of federal credit unions who have joined on the basis of belonging to groups other than the credit union's "core group" (the group that formed the original membership base of the credit union).

The second set of potentially affected members is a subset of the 10 million current members whose eligibility may be in jeopardy. It is the roughly 1 million non-core members who have joined a federal credit union since the July 1996 decision by the D.C. Court of Appeals that ruled against NCUA. The bankers have suggested that even if they do not seek divestiture of the full 10 million, they may seek termination of membership of the 1 million newer members and other members from some of the largest multiple-group federal credit unions.

There are another approximately 25 million people who are in the non-core groups who have not yet joined a credit union, but whose SEG eligibility is jeopardized unless Congress acts. Some of these people will qualify for other federally chartered credit unions, either through a spouse's membership or by living in an area served by a community credit union, or they will be within the field of membership of a state chartered credit union. Nevertheless, the Supreme Court ruling places a significant barrier to reasonable access to credit union services for millions of these consumers.

It is no secret that credit union membership has been growing at a pace somewhat about normal since the D.C. Court of Appeals handed down the first adverse ruling in July 1996. Why? Undoubtedly, this is the result of people being made even more aware of credit unions and the fact that their opportunities to join these member-owned financial cooperatives may be severely restricted in the near future. There have been more than 80 pro-credit union editorials in papers across the United States, plus columns, op-ed pieces, and letters to the editors on this issue in the last year.

2. There is confusion among the public and credit union members about what is going on.

As suggested above, just who might or might not be affected by the Supreme Court's ruling is unclear. It is a very complicated question. Most of the press reports immediately following the Supreme Court's ruling did an admirable job of simplifying the concepts, but the simplification led to some incorrect conclusions. For instance, many of the reports did not sufficiently point out that the ruling applied only to federal credit unions. Also, many credit union members are probably unaware of whether they belong to a permissible or non-permissible group.

Many, many credit unions reported getting calls from members in the days after the Supreme Court ruling was reported in the press about whether they will be forced out of their credit union. One state league took a survey of 77 credit unions; in the first three days after the Supreme Court ruling these credit unions reported that they had received 760 inquiries from members about their continued eligibility to be members of the credit union. One credit union president even reported a member breaking down in tears because she was afraid she would lose her membership!

A number of credit unions reported inquiries from members about whether it was safe to keep their money at the credit union. I've seen a statement stuffer from one credit union that begins: "Important Notice -- Your Account is Safe and Sound!" A number of small business SEGs have made inquiries on how the ruling affects their employees. One credit union even received a call from the landlord asking if the credit union would be vacating a branch location (even though the lease runs two more years)!

Such confusion does not promote healthy, viable financial institutions. Congressional action is needed to allay concerns.

3. The uncertainty among credit unions could lead to charter conversions.

In November 1997 CUNA and NAFCU conducted a survey of federal credit unions with multiple groups. The survey was done with verification of the processes and results tabulated by Ernst & Young (we will refer to this survey as the "November multiple group survey"). The federal credit unions that serve multiple groups were asked if they would give serious consideration to converting to another type of credit union if the Supreme Court ruled in favor of the banks, and credit unions could not obtain immediate legislative relief. About 40% of affected federal credit unions responded they would give serious consideration to conversion to a state charter.

Among the largest of these credit unions (which account for 45% of the members and 54% of the assets in all multiple group federal credit unions), over half would give serious consideration to conversion to a state charter. Such charter conversions would weaken the federal credit union system and undermine the dual chartering system which Congress has always supported.

Neither NCUA nor state credit union regulatory agencies have the staff that would be needed to process the inevitable flood of conversion applications that would come if Congress' only response to the adverse Supreme Court ruling is "grandfathering" legislation.


Several members of Congress have already introduced bills to allow credit union members as of February 25, 1998 (the date of the Supreme Court ruling) who have joined from "ineligible" groups (meaning SEGs that were added to the credit union's core/original group) to retain their membership. This proposal really means only these specific people would be "grandfathered," and everyone else from SEGs would be ineligible to join. Moreover, since such legislation pre-supposes that the Supreme Court ruling would not otherwise be addressed, federal credit unions would also remain prohibited from adding SEGs.

There are two basic reasons why "grandfathering" legislation is not a solution:

1. Federal credit unions that draw most of their membership from "select employee groups" (SEGs) would "bleed to death" by having a drain on membership. Over time, this group of credit unions probably would be unable to continue to offer the same level of service, which would exacerbate the loss of membership and could raise safety and soundness concerns.

Look at the inevitable drain on the membership if a federal credit union were to be prohibited from adding new members from SEGs. Among other issues the November multiple group survey explored, credit unions were asked: "Does your core group's sponsor still exist?" Based on their responses, an estimated 250 credit unions no longer have a primary sponsoring group, and those credit unions serve 1.9 million members and hold $9 billion dollars of total assets. Some of these federally chartered credit unions could qualify for a state charter in their state, others probably not, since states have their own rules governing common bond.

CUNA economists estimate that a credit union will typically generate annual membership growth of 4% by adding twelve new members and losing eight members per hundred to relocation, death or switching to a different financial institution. For those credit unions whose primary/core membership group constitutes a small fraction of its potential members, disallowing new non-core members will cause the credit union's membership to shrink at almost an 8% annual rate. The shrinkage might be even more dramatic if members perceive that the credit union's service capability or even stability is undermined, or SEGs withdraw their sponsorship because not all of their employees are allowed to join.

The November multiple group survey found that estimated 750 federal credit unions draw at least one-half of their potential members from non-core groups. Refusing to allow new memberships to consumers from non-core groups would eliminate at least one-half of the potential for new memberships in these credit unions. For many of these credit unions, the result will not be as dramatic as for those credit unions that lack a primary sponsor, but it would still mean a significant ongoing decline in the credit union's membership. Using the figures cited above for 12% new members per year, eliminating one-half of these credit unions' potential new members would reduce their new members to the range of 6% per year. That would be insufficient to replace the 8% lost each year.

As a result, the credit unions' memberships would shrink by approximately 2% per year. As the credit unions shrank and became unable to support their previous levels of service, the shrinkage would probably accelerate over time. The average age of the memberships would also increase. Young people who are most in need of credit would be unable to join the affected credit unions, while the credit unions would have difficulty in maintaining their income in the face of reduced loan demand.

What is a real example of the problems of only allowing a credit union to grow from its "core" -- original -- base and merely "grandfathering" those people who have already joined from its SEGs? Look at GenFed Federal Credit Union just down the road from me in Akron, Ohio:

_Akron, Ohio: Today, GenFed is a thriving $95 million credit union serving 26,000 members. It was organized by General Tire employees in 1937, and had 6,300 members in 1981. That year General Tires closed its Akron plant, and with lay-offs affecting 2,400 members. The credit union merged with eight credit unions over the years ranging in membership size of 40 to 3,200. In 1985 GenFed started to add SEGs and today serves 210 SEGs, ranging in size up to 800 members. How many people today are employed by GenFed's "core" group, the group around which the credit union was originally chartered? Exactly 110 people! So "grandfathering" would only guarantee that GenFed's membership would slowly shrink, or perhaps quickly shrink if members became concerned about the credit union's future.
Enactment of a "grandfathering" bill would only guarantee problems for individual credit unions, the credit union movement, and the National Credit Union Share Insurance Fund down the road.

2. A "grandfathering" provision would be discriminatory to other people in the SEG -- those who work for the same employer or belong to the same fraternal organization or attend the same church -- who have not yet joined the credit union.

A "grandfathering" provision resurrects the District Court's ruling in October 1996 which froze membership in federal credit unions serving multiple groups, with only new members being allowed from the federal credit union's "core" group. The unfairness of this approach is best documented by real examples from when 3,500 federal credit unions were subject to an injunction order prohibiting new members from existing SEGs between October 25 and December 24, 1996. Here are three real life examples of what "grandfathering" in practice would mean:

_Polytechnic Heights, Texas: The nearest bank to this migrant worker community is 5 miles away -- light years for people without reliable transportation. OmniAmerican Federal Credit Union in Fort Worth had years earlier been chartered to serve an Air Force base that is now closed, so over the years had taken in diverse groups of people and now has about $500 million in assets. As a result of a 1994 change in NCUA policy to allow multiple group FCUs to add low-income communities to their membership, OmniAmerican built a branch in the heart of Polytechnic Heights to help develop the community and give residents access to daily transaction services. Unfortunately, the branch had its grand opening the day after the court injunction was handed down on October 25 so no one in the community could join. The branch languished until the partial stay was granted two months later. If Congress' "solution" to this problem were merely to allow those residents of Polytechnic Heights who had joined OmniAmerican by February 25, 1998 to stay in the credit union, it would not only be discriminatory, it would present real hardships to all the local residents excluded. Such "grandfathering" legislation would also ensure that the credit union branch would eventually have to close.

_Warren, Michigan: The challenge of daily life is difficult enough for the mentally impaired. So the leaders of a group home in Warren tried to start a relationship with a local community bank. The bank was not interested, but then Research Federal Credit Union ($123 million in assets) was asked. The credit union assisted the home's residents lead a more functional life by helping them learn to save and handle their money. This membership service had to be suspended for the two months of the injunction for any new resident, and of course new residents at the group home would be forever denied access to Research FCU if only a "grandfather" bill is enacted by Congress.

_Kansas City, Kansas: St. Arch Angel Michael Serbian Orthodox Church was in a bind. The church wanted to continue to offer credit union service as a benefit to its followers, but the church's credit union was too small to offer much beyond simple savings accounts and small loans. So in 1993 the church-goers voted to merge their credit union with KC Fiberglass Federal Credit Union. It was a match made in heaven -- until the October 1996 injunction blocked the credit union from providing membership for any new members of the church. If the merger had been forced because the credit union was insolvent and involuntarily merged into KC Fiberglass, the court would have allowed membership services to continue, but the new church-goers were out of luck, at least until the partial stay was granted on Christmas Eve, 1996. (Emergency mergers of federal credit unions that are insolvent or in danger of insolvency are specifically allowed by the Federal Credit Union Act.)

We did not have to look hard for these examples -- we could find for the House Banking Committee many such examples. After all, the 3,500 federal credit unions affected by the Supreme Court's ruling today serve about 157,000 SEGs! Each and every one of these groups would have employees and associational members affected. At the local police station, some police officers would have the benefits of credit union membership, others would be frozen out. The same at the dairy, the doctor's office, the hospital, the furniture manufacturer, the fraternal lodge, the insurance company, the university, the machine and tool shop, the funeral home, etc., etc., etc.

"Grandfathering" is not an acceptable answer to addressing the dramatic problems raised by the Supreme Court ruling. It is not acceptable from the perspective of the credit union as a financial institution that has to plan for growth, not attrition, in order to remain financially safe and sound and to provide quality services to its membership. And "grandfathering" is not acceptable from the perspective of the 25 million people who are in the non-core SEGs and who are eligible to join but have not yet done so.


Bankers have indicated to members of Congress that enactment of the language of H.R. 1151 will eliminate the common bond, and open up credit unions to the general public. That is simply not true. NCUA has policies and procedures that require specific documentation for adding "select group additions." There is no evidence that NCUA would change the procedures that require proof that the group actually exists for some other purpose than being a facade to gain credit union membership. The requirements are enumerated in the agency's "Chartering and Field of Membership Manual" which is an Interpretive Ruling and Policy Statement (IRPS) that has been the subject of notice and comment and governs how groups, federal credit unions and agency staff must handle multiple group applications. To summarize from the agency's manual:

Any group seeking to be included in an FCU's field of membership, must provide to the federal credit union a letter on the group's letterhead and signed by an official representative of the group where possible, containing the following information:

-- The fact that the group wants to obtain service from the proposed FCU, the kind of service it desires and that the FCU has agreed to provide, and the extent to which the group supports the FCU (such as by payroll deduction, use of the group's newsletter, etc.).
-- The number of employees in the group.
-- The proximity of the FCU's closest service facility.
-- The name of any credit union to which the group currently has access (and why this new credit union access is sought).
-- The group's headquarters location and other work locations the credit union proposes to serve.
-- If an associational group, a copy of the group's charter and bylaws defining the group's purpose, membership classes, and geographical area.
This information is reviewed by regional office and, in almost all cases, approved and the charter amendment granted. We should note that, for several years, NCUA had "streamlined expansion procedures" to allow federal credit unions to obtain the required information for its files, but did not require individual agency approval of each SEG once the credit union qualified for using the special procedures. These procedures have been eliminated and we do not expect them to be reinstituted once Congress clarifies NCUA's authority to grant multiple group charters.


We continue to urge credit unions not to overreact. However, if Congress does nothing or this problem drags on unaddressed for many months, the 3,500 federal credit unions with SEGs will have to consider other options, none of which are very attractive or practical. Perhaps the most immediate reaction by a number of credit unions would be to seek conversion either to a community charter or to a state charter, neither of which were impacted by the court decision. Several hundred credit unions have already started down this path, but as I mentioned above, NCUA and states lack the staffing to handle mass conversions quickly and efficiently. Besides that logistical problem, both of these options present substantive problems.

The criteria for meeting the standards for a community charter are not always favorable for conversion for a variety of reasons, including concerns about overlap with other credit unions operating in the area. And the banking industry is also challenging NCUA's granting of community charters as well. For instance, on the very moment we were arguing the At&t Family Federal Credit Union case before Supreme Court, the banking industry filed another lawsuit challenging NCUA grant of a community charter to a federal credit union in California.

Conversion to a state charter not only raises questions about maintaining the viability of a healthy dual chartering system, but also is fraught with many hoops to jump through. Questions must be answered regarding whether the state charter helps meet the particular credit union's goals; state laws regarding membership, services, regulation, and other considerations are often very different from those of the federal charter. Furthermore, some state laws mirror the federal law. So if federal law did not permit multiple groups, those state laws may not permit them either unless the state takes action to rewrite its law. In addition, the bankers have already begun challenges in individual states to restrict the fields of membership of state chartered credit unions, and if they succeed, the state conversion option would be eliminated. Furthermore, the bankers have been and will likely continue to sue over these charters. In fact, there are currently six lawsuits pending regarding state chartered credit unions' field of membership, with others threatened.

Another possible option would be conversion to a mutual thrift institution. This option would be difficult from a number of perspectives, not the least of which would be for the credit union board to gain the approval of the credit union's membership. Such a drastic shift would change the philosophy of the membership and the institution and would have other significant consequences, whether in taxation or regulation or other matters. Widespread conversions would defeat Congressional intent of making credit union services available as widely as possible. Although credit unions are mutually owned organizations, their legal and operational structures are significantly dissimilar to mutually owned thrift institutions. Three key areas are:

Credit unions -- "one person, one vote", so each account holder have one vote for members of the board of directors, regardless of how much money the person has on deposit with the credit union, compared to...
Mutual thrifts -- cumulative voting, meaning the more money the person or organization has on deposit, the more voting power.
Credit unions -- the credit union board cannot vote on behalf of individual members or groups of members, compared to...
Mutual thrifts -- depositor/owners can sign over their voting rights to the board. This has often resulted in "self-perpetuating" boards, whereby directors serve many years without other people being able to effectively challenge them.
Credit unions -- only one member of the federal credit union board is allowed to receive any compensation, and that traditionally has not happened or at most been nominal, as compared to...
Mutual thrifts -- director fees are typical for all members of the board and usually run into the thousands of dollars annually for each member of the board.
Credit unions' restricted lending and investment powers, coupled with the not-for-profit characteristics which preclude individuals from personally benefitting from the financial successes of the credit union, explain why only one or two mutual thrift organizations have ever converted from a mutual thrift to a mutual credit union. We are only familiar with one that has in recent memory and that institution was already operating with a unpaid board.

One of the least feasible options would be to try splitting the federal credit union serving multiple groups into segments obtaining a separate charter for the different groups. Each group would require at a minimum its own board of directors. This option would really not be available to most of the multiple group credit unions, however, because the SEGs are too small to be chartered as stand-alone credit unions. Even for those that might be large enough, they would lose economies of scale and diversification for safety and soundness purposes. In some instances it might be possible to run the various credit unions under a management contract, but it certainly would be inefficient at best. There would also be a question of how to handle the capital and reserves built up in the original unit.

We hope that Congress will act in a timely manner so that many federal credit unions do not have to undertake a major overhaul of their operations in order to best serve their membership under trying conditions.


Legislative proposals to address the field of membership issue first and foremost must be evaluated by the simple measure: "Does the consumer benefit?" Congressional response should not be about what is best for banks or for credit unions. It should be about what is best for the consumer -- individuals, employees of small businesses, employees of large business, and anyone who needs the services of a financial institution and wants a choice of alternatives. And we emphasize alternatives -- a choice only between two banks is no choice at all!

When a member walks through the door of his credit union, the credit union's goal is to provide service to that member-owner. The credit union certainly has to worry about the "bottom-line" in order to cover expenses, to contribute to capital (as a mutual institution), and to pay reasonable dividends. Maybe we can best summarize that the mission of a credit union is to keep as much money as possible in the pocket of its members while providing them the financial services they want and need. When a customer walks through the door of the bank, the bank's goal is to make money for its stockholders. This is certainly a reasonable expectation for a stockholder-owned financial institution. But bankers want everyone to believe that banks and credit unions are just alike, except banks pay federal income taxes. This is not correct!

Consumers will benefit by the enactment of H.R. 1151 because it will assure 10 million members continued access to their credit union, will assure another 25 million of their right to join the credit union they are already eligible to join due to their employment by a certain company or association with a certain organization, and will assure that 62 million Americans who work today for small businesses will not be limited in their choice of financial service alternatives in the future.


Credit unions are unique in the financial sector -- not so much in what they do, but in how and why they do it. Before I review the basic characteristics that distinguish credit unions from banks, I want to tell you a family story which shows that my belief in the "credit union difference" runs deep.

Both my parents were immigrants from Europe. My father arrived in America, speaking little English. After not finding a job in Ohio, he decided to open a small business. He needed $2,000 for equipment and to cover the first few months' rent. Three banks politely turned him down. After all, he had no income, my mother had only a little income, and they both lived with my grandparents. Someone at church asked if he had tried the credit union. He asked, "What's a credit union?" He then visited the St. Anthony Federal Credit Union, which was opened after church that Sunday. A week later the committee approved the loan, telling him they were willing to take the chance on him. That was his start in America in 1964, and my roots in the credit union movement.

I strongly believe the mission of credit unions has not changed today. Some credit unions may be very large, some very small, but the cooperative philosophy of credit unions remains "People helping people." My credit union was approached in the early 1990's to help the students of Kent State University start a credit union. We pulled together a task force and the Kent State Student Credit Union was chartered five years ago. Today, we continue to support that credit union in such ways as providing training to the staff, holding educational sessions on finances for the students, and engaging in loan participations to increase the amount of loan funds available to students. Other credit unions have reached out to university students by bringing them in as a SEG. There is no one, "correct" way to handle such outreach, but the important thing is that college students have financial alternatives to consider as they start on an independent financial path.

1. There are five characteristics that differentiate credit unions from other depository institutions.

Our testimony before the Subcommittee on Financial Institutions last year spoke in depth about the credit union difference, and I am sure that every member of this committee has heard from your credit union constituents reinforcing what credit unions are all about. A brief refresher on what makes the credit union structure so invaluable to American consumers might be helpful. Instead of summarizing these characteristics from an "insider's" -- my own -- perspective, let me quote the five distinguishing characteristics that the U.S. Treasury Department identified in its December 1997 Credit Union Study mandated by Congress. The Treasury Department observed:

"Credit unions are depository institutions. Like banks and thrifts, they accept deposits and make loans. At this basic financial level, credit unions very much resemble banks and thrift institutions....However, credit unions have several characteristics that, taken together, distinguish them from banks and thrifts....Although other financial institutions may have one or more of these characteristics, it is the combination of them that defines credit unions as a distinct class of depository institutions."
The five characteristics identified by Treasury are cited in bold, with CUNA's observations following each one:

(1) "First, credit unions are member-owned, member-directed depository institutions."

When people say, "This is my credit union," they mean it. Members control the organization primarily by electing the board of directors, which guides the credit union. All federal credit unions operate with a "one-person, one-vote" ownership control, regardless of the amount of money he or she has on deposit. The "share account" represents the ownership interest, and "dividends" are paid out as the returns on a member's investment in his credit union. Everything the credit union earns beyond the funds used to cover operating expenses, capital and reserves, is paid back to members. That is why the money the credit union movement is having to spend to fight banker associations in courts and Congress is money that would otherwise be going into our members' pockets.

(2) "Second, credit unions rely on unpaid, volunteer boards of directors elected by, and drawn from, each institution's membership."

Every director must belong to the credit union -- there are no "outside" directors. Over 82,000 volunteers sit on credit union boards of directors, volunteers who are subject to the same fiduciary duties and liabilities as bank directors. The Federal Credit Union Act allows one board member to be paid, but we estimate that less than 3% of credit union board members receive any compensation for serving as a director, and the compensation received is a fraction of what every bank director is paid.

As unpaid volunteers of mutually owned cooperatives, the directors of credit unions are conservative in nature and seek to bring their fellow members solid services and returns on their savings, but do not "swing for the fence" in making investment decisions. They know the deposits of the credit union come from people they work with, neighbors they live near, people they worship with, etc. The nature of the credit union's leadership explains in great part why the credit union movement performed so solidly during the 1980's when other depository institutions became overextended and presented risks both to their stockholders and the federal insurance funds.

(3) "Third, credit unions do not operate for profit."

Credit unions are not-for-profit businesses, self-supporting concerns whose mission is service. Adequate income is necessary, but decisions are driven primarily by the needs of the members. Credit unions have no separate set of stockholders who benefit from the institution's success. Dividends and interest rebates are direct returns. Lower interest rates, new or better services, and current or future operational improvements are indirect returns. As non-profit organizations, credit unions are exempt from federal income taxes under Section 501(c) of the Internal Revenue Service. However, all income paid out to members in dividends is subject to personal income taxes under the Code.

(4) "Credit unions have a public purpose."

As the Treasury Department notes in its study of credit unions, the Federal Credit Union Act states that federal credit unions system was created "to make more available to people of small means credit for provident purposes..." and federal credit unions are cooperative associations organized "for the purpose of promoting thrift among its members and creating a source of credit for provident and productive purposes." Credit unions take this responsibility very seriously. I know this is very important to my credit union. I reviewed my loan records to see how many loans under $2,500 Kent Credit Union makes to our members. One out of four loans we make are less than $2,500 in size (and these are not loans via credit cards or checking overdrafts, other services my credit union has available). Here are two specific examples of how credit unions' small loan efforts make the difference in people's lives:

_ Chillicothe, Ohio: The HYS FCU has less than $200,000 in assets, and serves many of the low-income clients of the Ross County Community Action Organization. ("HYS" stands for "help yourself.") The credit union has made a small loan for dental work to a man in danger of losing his job because of severe gum infection.

_ Rio Grande Valley, Texas: Thousands of poor families in the Rio Grande Valley of southern Texas have become homeowners with the help of a creative program offered by their credit unions. Called "one wall at a time" loans, they are a series of small personal loans from the credit unions that borrowers used to build their homes one room, one porch, one roof at a time, repaying each loan as the work progresses. The innovative program was featured in the Wall Street Journal, which also focused on other innovative programs Texas credit unions offered to make it easier for low-income families to obtain mortgage loans. With increased authorization from NCUA in 1994, a number of occupationally-based federal credit unions were considering how they could provide membership to nearby low-income communities. The D.C. Court of Appeals ruling in 1996 brought those efforts to an end.

A credit union is a prime example of a cooperative, and the system of credit unions is a cooperative network (which is not to say that credit unions may not be competing for people to join their particular credit union). In a recent survey, for instance, 93% of the responding credit unions reported that they provided some type of assistance, either free-of-charge or at a reduced rate, to other credit unions during 1997. My example earlier of my credit union's ongoing support of the Kent State Student Federal Credit Union is a common one throughout the cooperative U.S. credit union system to help carry out our public policy purpose.

(5) "Fifth, credit unions have certain limitations on their membership, generally based on some affinity among members."

The field of membership issue is, of course, what brings us to this committee today. It is the position of the Credit Union National Association that every consumer should have access to financial services through one or more credit unions. That does not mean that any credit union should be able to offer membership to any consumer. The field of membership policy that NCUA has had in place since 1982 reasonably balances the needs for defined charter amendments on membership with the interests of consumers in having the ability to become a member-owner in a financial cooperative.

2. A large credit union is like a small credit union, not like a bank.

Looking at the structure, philosophy and service, credit unions are different from other depository institutions. And regardless of what bankers will lead you to believe, none of these characteristics changes as a credit union increases its asset base. Larger credit unions are equally consumer-oriented and service-oriented as smaller. We have studied the following key consumer issues and find no significant differences between large and small credit unions:

o FEES: As has been documented a number of times, credit unions are much less likely to charge fees than are banks, and when credit unions do charge fees, their rates are much lower than at banks. When comparing large to small credit unions, for some services (checking accounts), large credit unions are somewhat more likely to charge fees than are small credit unions, and their fees are slightly higher than at small credit unions. For other services (ATMs), large credit unions are less likely to charge, and their fees are lower. Overall, the differences between small and large credit unions are minor. The important relationship remains that credit unions of any size charge fewer and lower fees than banks.

o RATES: As has been documented a number of times, credit unions pay on average higher dividend rates on savings than banks pay on deposits, and charge lower loan rates than do banks. There is not much variation among credit unions by size, but where it exists, larger credit unions offer slightly more attractive rates than do smaller credit unions.

o LOANS: Credit unions are well known sources of small personal loans. Members are not required to use a credit card or a checking account overdraft when they need a few hundred dollars. CUNA's data shows that the smallest loans credit unions are typically willing to make are for $300, with the amount about the same for large and small credit unions. Credit union members tell us that banks will want customers to use expensive credit cards rather than making loans of a few hundred dollars. If federal credit unions -- large or small -- are no longer permitted to serve SEGs, many people seeking small loans will undoubtedly be driven to pawnshops or high fee finance companies to address their pressing financial needs.

o SAVINGS: Credit unions are also willing to accept small savings balances. In 1997, 44% of savings accounts at large credit unions (those with more than $200 million in assets) had less than $100 balances, compared to 34% at all other credit unions. For share draft (checking accounts), at the very largest credit unions, 27% of accounts held less than $100. At smaller credit unions, a similar 29% had these low balances.

Bankers will tell you they "have no problem" with credit unions that "keep to their mission" and "don't offer 'bank-like' services." The bankers' "solution" is to tax large credit unions. Large or small, credit unions' mission and unique defining characteristics remain the same.

The Federal Credit Union Act was enacted in 1934 because the needs of the average consumer were not being met by the banking industry. In fact, credit unions began offering consumer financial services decades before many banks even discovered consumers. At the time of the enactment of the Federal Credit Union Act, banks were perceived as having disdained working people, because many borrowers of small means lacked adequate security or sought loans in amounts too small to justify a bank loan.

Quoting from the 1934 legislative history: ""[B]anks...cannot extend credit to many of these people, because they do not have the required security." And, credit unions would serve individuals "who do not use and cannot use banks...for small borrowings." The common bond provision was intended to be a mechanism to help facilitate the chartering of credit unions and to keep credit unions economically viable. The common bond was not established to protect banks from competition, but to help create competition by creating federal financial cooperatives as an alternative source of credit.


Employees of small businesses will be particularly adversely impacted if the Supreme Court holding is allowed to stand by Congress. It is wrong to limit the financial choices available to employees of America's small businesses. A business with 4, 40 or 400 employees should have the same right to offer the benefit of credit union services to its employees as does a business with 4,000 or 40,000 employees.

1. About 63% of private sector workers in the United States -- 62 million employees -- work for organizations that employ fewer than 500 employees, groups too small to charter a viable credit union.

As mentioned earlier, there are more than 150,000 SEGs in the 3,500 federal credit unions that NCUA has identified as having multiple group memberships. The November multiple group survey estimates that approximately 94% of the current SEGs have fewer than 500 potential members.

Interestingly, the legislative history of the 1934 Federal Credit Union Act (Congressional Record, volume 78, p. 12225, 1934) contained this exchange:

"Mr. Knutson: Will this legislation take care of small business men who have one or two clerks?

Mr. Luce: I have no reason to believe that they cannot join the union and profit thereby."

NCUA's Chartering and Field of Membership Manual, which sets forth the agency's policy requirements on field of membership chartering requirements and expansion, states:
"While NCUA has not set a minimum size field of membership for chartering a federal credit union, experience has shown that a credit union with under 500 potential members is generally unlikely to succeed. Therefore, a charter applicant with a proposed field of membership of under 500 will have to demonstrate convincing support for the credit union. For instance, a small occupational group must demonstrate a commitment for significant long-term support from the employer."
A potential of 500 is a very small group for a charter, and a minimum group size of about 2,000 is often recommended since a 25% success rate of actually signing up members would create a 500-person membership base.

In early 1997, the Filene Research Institute released a study entitled "An Analysis of Public Policy on Credit Union Select Employee Groups." (The Filene Research Institute is a nonprofit organization which conducts analyses of issues affecting the future of consumer finance and credit unions.) The Institute reported that among the federal credit unions with multiple groups, the average credit union has 40 SEGs with an average of 72 members per SEG. Altogether, membership from the SEGs constitutes about one-quarter of the 44 million FCU members.

The Institute reported that 63% of the private sector workers in the United States -- 62 million employees -- work for organizations that employ fewer than 500 employees, so a new credit union charter is not a viable option. (Firms with fewer than 10 employees make up 25% of the work force.) Since October 1996 the federal courts have prohibited federal credit unions from adding businesses, and the courts may conclude later this year that some or all of the employees from SEGs can no longer be eligible for federal credit union membership. These millions make a dramatic statement of why H.R. 1151 is needed.

The Filene Research Institute also reported that the wages of employees at small and medium- sized firms are significantly lower than those of employees at larger firms. Moreover, the employees at small and medium-sized firms are much less likely to have health or pension benefits from their employer. The Institute concluded that the court's ruling effectively reversed one of the basic purposes of the Federal Credit Union Act, which is to provide people of modest means access to a national system of credit cooperatives. I have included as an attachment at the end of this testimony information on the number, wages and benefits of employees on a state-by-state basis, broken down by employees working for companies with over and under 500 employees.

Credit union membership has been increasingly viewed as a popular employee benefit, either by the company sponsoring its own credit union or by supporting the addition of the company as a SEG to an existing credit union. Company support can run the gamut from providing the credit union with office space in the plant, providing time off with (or without) pay to employees to attend credit union board meetings, providing payroll deductions for credit union deposits, and/or putting information in the company's newsletter. In most cases credit union membership for company employees is viewed by employers as offering a fringe benefit that costs the company little but assures the employees access to financial services at reasonable prices by a non-profit institution that has only the members' interest at heart.

Here are two examples to show how the SEG additions really help people employed by small business and how the prohibition against the addition of SEGs now in effect really hurts people:

_Lake City, South Carolina: Of the 300 employees at the Coleman Company's plant in Lake City, 250 of them have joined the $73 million Carolina Trust Federal Credit Union since the group became eligible for membership in 1991. The head of personnel at the company says: "Approximately 65% of our low-income employees live in a community filled with nearly 20 finance companies that are more than ready to loan them money at high interest rates. We firmly believe that our employees can help other employees in learning how to budget, be able to buy items they need at a reasonable cost, and provide it through payroll deduction."

_Ridgeway, Virginia: Credit union service is not available to the employees of Multitrade Group, which has a membership application pending since the injunction was issued 16 months ago. Ninety percent of the employees of the company earn between $22,000 and $30,000 a year. The company's CEO states: "I am personally aware that some of Multitrade's employees have been unable to obtain services from local banks. I believe that (credit union membership) will provide a much-needed benefit to Multitrade's low-income employees."

On a related note, bankers have said that credit unions are supposed to serve people of modest means, but that the income of credit union members is higher than that of the general public. It is true that, on the whole, credit-union-member households earn more on average than non-member households. This is hardly surprising. Credit unions typically are employment-based, and thus members are better educated, more likely to be working full-time, more likely to be living in a dual-income household, and less likely to be retired than are nonmembers. However, it is the credit union members who do not rely on the credit union as their principal financial institution who generally have higher incomes and thereby distort the overall average credit union member household income figure. Predominant credit union members (i.e., those who depend the most on credit unions) have lower household incomes than do bank customers. The bankers' own survey shows that the average household income for those who use a bank as their primary financial institution is about $5,000 higher than the average for those who use a credit union as their primary financial institution. In addition, the Federal Reserve's 1995 Study of Consumer Finances reveals that those who use only a bank have annual household incomes of nearly $10,000 more than those who use only a credit union.

2. Congress should not be tempted to try to dictate what maximum or minimum number constitutes an acceptable "select employee group."

We realize that some members of Congress have questioned whether some groups are so large that they should not be permitted to get credit union service by joining an existing credit union, but rather should be required to charter a credit union de novo. Other members of Congress have questioned whether some groups are so small that they should not be allowed to join an existing credit union, but rather should be denied credit union service. Let's walk through a hypothetical about five nurses employed in different situations to determine what is fair. (Just to help you visualize the types of people credit unions help day in and day out, these five hypothetical nurses all earn about $29,000 a year, each is divorced, everyone of them has a teen-age son, and all are worrying whether their cars will get them to work tomorrow.)

Nurse A is employed by a doctor in solo practice, so there are just two people in the doctor's office.
Nurse B is employed by a thriving pediatric practice which has six doctors, six nurses, and two bookkeepers/receptionists, for a total of 14 people.
Nurse C is employed in a busy health clinic sponsored by an HMO, with 100 people serving the clinic is various capacities.
Nurse D is employed by a major urban hospital that has a staff of 2,000 doctors, nurses, aides, clerks and technicians. The employees at the hospital are busy people who have never gotten around to organizing a credit union.
Nurse E is employed in a major urban hospital that has a staff of 2,000 doctors, nurses, aides, clerks, technicians, etc. The ABC Hospital FCU serves this group well (although the credit union has added some local SEGs and may start to have financial problems if Congress does not pass H.R. 1151).
So how does Congress make the decision of who can join an existing federal credit union and who cannot?
Nurse E has a credit union, so no problem (as long as her credit union can continue to serve other SEGs to provide diversity and stability to the credit union).
Nurse D has heard great things about credit unions, but is told it will take a year or so to organize a credit union from scratch and then the types of services members will want as soon as possible (checking accounts, credit cards, ATMs, car loans) may take several more years to introduce, since credit unions' capital and reserves are built dollar-by-dollar from the earnings of the credit union. However, she hears there is an excellent federal credit union, XYZ Widget FCU, several blocks away and wants to explore whether that credit union will agree to serve the hospital.
Nurse C approaches XYZ Widget FCU, asking whether it can also serve the health clinic around the corner.
Nurse B hears from the mother of a patient that XYZ Widget FCU is a great place to save and get a car loan, so she too approaches XYZ Widget FCU about serving her medical office.
Nurse A nurses her old car into the local garage, is told it is on its last gasp, and shrieks that she can't afford another car. The mechanic suggests that perhaps his credit union, XYZ Widget FCU, might be able to help.
Does Congress really want to try to decide if Nurse A's group of two people is too small of a small business to merit credit union service? If two is too small, is 14 too small? Is 100 okay? Remember the majority of jobs today are being created by small businesses, those with fewer than 500 employees.

Does Congress really want to tell Nurse D that those hospital workers must organize their own credit union if they want credit union service? There is a reason that the number of credit unions and banks have been decreasing in number while increasing in assets and people served. The reason is efficiency and technological costs, driven by consumers' expectations of having a broad array of services offered by their financial institution at reasonable prices and ready convenience. Moreover, unlike capitalizing a bank from the investments of initial stockholders, credit unions have to build capital by retaining a portion of every dollar of earnings, slow process.

Trying to legislate on the question of what is an "acceptable sized SEG" would be a challenge which will result in inequities. It is a good reason why, generally, any regulatory agency needs to have the authority to be flexible to accommodate changing economic circumstances, and, specifically, why NCUA should retain authority to determine what documentation is required for "select group additions."


1. Comparison of loan and savings rates at banks and credit unions

There is a reason that Nurses A, B, C, D and E want to make sure they have access to a credit union. That is so they can compare rates and fees offered by their local banks with their credit union. Below is a chart compiled by the National Economic Research Associates as part of a study entitled, "Economic Role of Credit Unions in Consumer Banking Markets." It very simply shows that in many cases, a person's credit union may be the place to go for a car loan or to invest in a certificate of deposit.
Loan Rates: 
  Bank Rates  Credit Union Rates   
New Car  9.44  7.94  16% Lower 
Credit Card  18.10  13.31  26% Lower 
Personal Loan  15.57  13.76  12% Lower 
Returns on Savings and Deposits:   
  Bank Rates  Credit Union Rates   
Checking  1.26  2.10  67% Higher 
Money Market Yield  2.48  3.72  50% Higher 
6-Month CD  4.83  5.38  11% Higher 
1-Year CD  5.10  5.70  11% Higher 
Source: National Economic Research Associates. November, 1997.

2. Comparison of fees charged by banks and credit unions

Another reason consumers will benefit from the enactment of H.R. 1151 is it will permit millions of consumers to continue to have, or obtain eligibility, to join credit unions that allow them to meet their financial needs. One conspicuous measurement of the value of credit union membership is a comparison of credit union fees for services and bank fees.

On the following pages is a chart entitled "1997 Credit Union vs. Bank Fee Comparison." The data was compiled by the Consumer Federation of America and CUNA, and is based on a CUNA survey of a random sample of our membership and a survey conducted in the summer of 1997 by Shesunoff Information Services of banks and savings and loan associations. In announcing this latest information in early February 1998, Stephen Brobeck, the CFA Executive Director, said: "The difference in fees is significant and helps explain why consumers consistently rate credit unions more highly than banks."

You will see from the chart that, for almost all services, fewer credit unions than banks charge fees. These differences are especially striking for "economy" checking accounts, where far fewer credit unions than banks charge monthly fees (15% vs. 86%) and per-check fees (6% vs. 95%). The differences are also large for per-check fees on other checking accounts, fees for having a cashier's check issued, and annual credit card fees.

Share draft/checking fees 

% charging fee 

Average fee among those that charge   

CU/Bank ratio 

  Credit union1  Bank2  Credit union1  Bank2   
Economy checking* (highest fee charged)**  Monthly fee   










  Per-check fee  6%  95%  17 free checks, then $.22/check  9 free checks, then $.36/check 
Regular checking (highest fee charged)**  Monthly fee   










  Per-check fee  5%   


29 free checks, then $.20/check  15 free checks, then $.20/check 
Interest-bearing checking (highest fee charged)**  Monthly fee   










  Per-check fee   




29 free checks, then $.26/check  17 free checks, then $.28/check   
Nonsufficient funds/NSF (for check returned)  98%  100%  $15.42  $17.39  0.887 
Overdraft (for check covered)  70% 90%  $9.62  $17.21  0.559 
Stop-payment  98% 100%  $9.51  $15.05  0.632 
Check printing markup (% over institution's cost)  60%  85%  12.60%  22.11%  0.570 

Automated teller machine (ATM) fees 


% charging fee 

Average fee among those that charge   

CU/Bank ratio 

  Credit union1  Bank2  Credit union1  Bank2   
ATM per-transaction (owned ATMs)  22%  7%  $.82/transaction 
(90% allow some free, avg. 6.6/month) 
$.74/ withdrawal  1.108 
ATM per-transaction (non-owned ATMs)  78%  79%  $.93/transaction 
(62% allow some free, avg. 5.2/month) 
ATM per-transaction surcharge (charge to noncustomers using owned ATMs)  16%  62%  $1.04/transaction  $1.13/ 
 Note: All percentages are limited to financial institutions that offer the service.

* Economy checking is defined as an account with a flat monthly fee or no monthly fee, sometimes having a limit on the number of checks written per month.

** Averages represent the highest fee charged if a minimum balance requirement is not met.

1Source: Credit Union Executive's 1998 Credit Union Fees Survey Report.
2Source: Sheshunoff Information Services, Inc., Pricing Financial Services 1997.

Note: Sheshunoff presents bank fee information for each product or service by listing the percentages of banks charging each fee amount. Averages are calculated by including zeros for those banks that offer the service but do not charge a fee. The numbers presented here have been recalculated (by excluding zeros and extreme outliers) to represent average fees only at those banks that charge a fee.


Credit card/other fees 


% charging fee 

Average fee among those that charge   

CU/Bank ratio 

  Credit union1  Bank2  Credit union1  Bank2   
Annual credit card  20%  43%  $11.61 
(grace card) 
$16.69 (unspecified)  0.696 
Cashier's check  54%  91%  $2.10  $3.34  0.629 
Money order  95%  95%  $0.93  $2.06  0.451 
Certified check  58%  75%  $3.35  $8.99  0.373 
Research time  51%  100%  $14.57/hour  $17.52/hour  0.832 
Annual safe deposit box (3 X 5)  95%  100%  $17.61  $17.72  0.994 
 Note: All percentages are limited to financial institutions that offer the service.

1Source: Credit Union Executive's 1998 Credit Union Fees Survey Report.
2Source: Sheshunoff Information Services, Inc., Pricing Financial Services 1997.

Almost all fees surveyed were lower at credit unions than at banks, sometimes substantially so. Fees on checking (among those institutions that did have a fee) were about 30-40% lower at credit unions. Fees for a money order and certified check were about 55-65% lower at the non-profit credit unions.

The only fees that were roughly the same at the two types of institutions were for a safe deposit box and for ATM transactions (on non-owned ATMs, and on owned-ATMs when used by non-credit union members).

Given banks' record profits of the past several years, banks could charge lower fees instead of complaining about any credit union advantages. Bank fee income on deposit accounts approximated $18 billion in 1997, according to Federal Deposit Insurance Corporation data. Imagine what bank fees might be in a world -- or a locality -- without credit unions.


It is important to remember why NCUA decided it was essential to revise its field of membership policy in 1982, a period when the United States was in a serious recession and experiencing rampant inflation.

Instead of hearing our version of credit union history, I will cite the report of the Congressional Research Service of the Library of Congress, issued in May 1997 and entitled "Multiple-Group Federal Credit Unions: An Update." The report briefly provides some insights of what was going on in our nation's economy in the early 1980's that necessitated NCUA to revised its field of membership policies:

"The NCUA adopted this policy to provide the industry with the flexibility needed to respond to the distressed situations caused by economic conditions. In addition, the NCUA wanted to ensure that all groups seeking credit union services could gain access.

The viability of many individual credit unions was threatened by the economic climate of the late 1970's and early 1980's. The U.S. experienced industrial slumps, the downsizing of companies, and plant closings. At the same time, there were a growing number of small service-oriented businesses that sought access to credit union services that did not meet the threshold for a charter of 500 employees.

The broader fields of membership obtained through multiple-group FCUs brought opportunities to individual credit unions and the industry as a whole. The NCUA regulations helped institutions avoid involuntary liquidation as a result of plant closings. Multiple-group FCUs expanded the access to credit union services. This worked for small member groups and also low-income consumers living in communities lacking access to financial services. The larger fields of membership provided economic stability and addressed the safety and soundness concerns associated with small memberships. In addition, multiple-group charters enhanced the credit union industry's ability to compete with other types of depository financial institutions."

With a plant closing, members of a credit union would need their savings immediately and mass withdrawals would create immediate stress on a credit union that a month earlier had been quite sound. In 1981 a record 251 federally insured credit unions were liquidated. In 1981 the NCUSIF was only capitalized at 0.3%, rather than the 1.3% it stands at today. The federal insurance fund for credit unions was not established until 1970 and had built up slowly over the ensuing years based on annual insurance premiums paid by federally insured credit unions. (Unlike the FDIC, the NCUSIF received no government seed money at its inception.) NCUA was concerned that with the accelerating rate of liquidations, the NCUSIF would be threatened. NCUA's then-policy would not even permit the mergers of federal credit unions with unlike common bonds.

As a result of the stresses apparent in the credit union system in the early 1980's, in April 1982 the agency announced its new policy that, with some adjustments over the years, allows federal credit unions to take in occupational and associational "select group additions" (which we are referring to as SEGs throughout this testimony), as long as people within the group share a common bond. In 1994 the agency extended its policy to allow multiple group FCUs to include low-income community groups as well. In October 1982, Congress passed the emergency merger provisions found in Section 1785(h) of the Federal Credit Union Act. In November 1982, six months after NCUA first adopted its policy on multiple group charters and results were already becoming apparent, President Reagan wrote to then NCUA-chairman Edgar Callahan, congratulating the agency on its deregulatory efforts. He said: "I especially want to note the way you were able to guide the credit union movement toward restoration, on its own initiative, of the financial health of the National Credit Union Administration Insurance Fund. This effort illustrates a basic tenet of our Administration, that, given the leadership and the opportunity, individual citizens acting together can often find solutions to their problems and need not turn to government to bail them out."

In 1984 CUNA, NAFCU, and NCUA urged the Congress to enact a law that requires federally insured credit unions to deposit 1% of their insured shares in the NCUSIF. The credit union movement recognized that we could not expect our insurance fund to remain independent unless credit unions contributed the resources to capitalize the NCUSIF. The 1% deposit bill was enacted, credit unions started depositing funds in insurance fund in 1985, the NCUSIF has been the most consistently capitalized fund since the 1980's at about 1.3%, and credit unions have received dividends on their deposit in each of the last two years. The U.S. Treasury Department did not recommend a change in the accounting treatment of the 1% deposit in its December 1997 Credit Union Study and reported that the Fund is functioning well. The American taxpayer ultimately stands behind the NCUSIF, as well as the FDIC.

CUNA seriously doubts credit unions would have advocated the 1% deposit legislation in 1984 if NCUA had not adopted the multiple group membership policy two years earlier. This policy protects not only other credit unions' 1% deposit, but ultimately the U.S. government that stands behind the Fund. The multiple group SEG policy allows a federal credit union to diversify its membership base and allows the voluntary merger of credit unions with unlike common bonds (without the merged-to-be credit union reaching, or in danger of, insolvency). The 1% law requires that credit unions -- and their capital -- stand behind the NCUSIF. If there were major losses to the NCUSIF, and the equity of the Fund were to dip below 1.0% of insured shares, credit unions are required by law immediately to replenish the 1% by making pro rata deposits to bring the equity ratio back up to 1.0%. NCUA's multiple group field of membership policy gives a federal credit union experiencing financial difficulties or anticipating problems down the road, such as when a military base is slated to close in two years, a way to build a strategic plan to overcome the problem. In 1981, most of the 251 credit unions liquidated had no alternative to liquidation.

Some federal credit unions immediately took advantage of the new policy in 1982. NCUA's 1983 annual report described several examples: The federal credit union serving an International Harvester plant, where employment fell from 3,300 to 500, quickly took in 38 SEGs, including a Baptist church and the Memphis Bar Association; a telephone credit union that had seen the telephone industry deteriorate and no growth in its membership also took in 38 companies, including a three-person communications firm, employees of Rochester Gas and Electric, and the local visiting nurses' association; and the FAA Eastern Regional FCU took in five groups to lessen its dependence on a single sponsor after it was adversely affected by the air controllers' strike in 1981.

Years after the 1980's recession became a memory and the NCUSIF was capitalized, federal credit unions still need the option of taking in SEGs to allow for diversification of their membership base. Here is one example from the witness who testified on CUNA's behalf before the Subcommittee on Financial Institutions last year:

_Los Angeles, California: The Los Angeles Schools Federal Credit Union was chartered in 1938 to serve the non-teaching school district employees and their immediate families in the public elementary and secondary schools and community colleges. In the early 1990's, the L.A. school district encountered serious financial problems that resulted in layoffs, reduction-in-force, and a series of unpaid furloughs. The economic problems of the school district immediately impacted the financial condition of the credit union. Delinquencies and bankruptcies climbed dramatically, causing such a severe drop in revenue that the credit union posted a financial loss in 1992.

Winifred Corey, the credit union's CEO, said: "Even more frustrating was the fact that our ability to serve our members in their time of need was directly constrained by the financial condition of the credit union." To diversify, the credit union extended membership to community college students and today serves seven campuses with branch offices. Students have special financial needs, so the credit union offers seminars on money management and enhanced ATM and audio response capabilities. The eight other SEGS served by LASFCU are trade schools in the L.A. area. With this diversity, today the credit union holds over $50 million in assets and serves 17,000 with many financial services.

Credit unions did not have the problems of the savings and loan associations and the commercial banks in the 1980's, in part because of the multiple group SEG policies adopted by NCUA in 1982. If Congress does not reverse the Supreme Court ruling, it is difficult to predict what restructuring will need to take place in the laws, regulations and operations of credit unions to make sure that problems experienced in the past do not re-emerge.


There is no evidence that NCUA permitting federal credit unions to serve multiple groups has had a negative impact on banks in the last 16 years. In fact, there is ample evidence that the banking industry is doing just fine, regardless of the existence of credit unions in their communities.


The banking industry's record of growth and prosperity in recent years makes crystal clear that competition with the credit union movement has not been a problem. Look at these two simple facts:

o Bank assets grew by $411 billion during the 12 months ending September 1997. That one year growth exceeded the total assets of the credit union movement of $356 billion in September of last year. Put another way, banks grew more in one year than credit unions have accumulated in their entire history of operations.

o Banks have experienced their sixth straight year of record profits, rising from $16 billion in 1990 to an estimated $58 billion in 1997.

We decided to look further, thinking perhaps information for smaller banks would highlight a different scenario. On the contrary, return on assets (ROA or net income as a percent of assets) of banks between $100-500 million in total assets has risen every year during the 1990's. For banks under $100 million in total assets, return on assets has risen every year during the 1990's except for a slight decline from 1995 to 1996, and September 1997 results indicate those banks probably more than made up for that slowdown in the year just ended. Competition from credit unions probably puts a ceiling on how much banks can charge consumers, but competition has not prevented small and medium-sized banks from generating record profits for their stockholders.

The recent U.S. General Accounting Office data provided to Senator Lauch Faircloth again supports a conclusion that the banks are doing just fine. Senator Faircloth asked for data comparing the growth and income of AT&T Family Federal Credit Union and other credit unions, savings institutions and banks headquartered in North Carolina. The GAO added comparisons nationwide, and adjusted for NationsBank's domination of North Carolina depository institution data. The GAO's data on comparative deposit growth show that the banking industry is more than holding its own against credit unions. The net income information shows that in the last five years all FDIC-insured banks and savings institutions increased net income by 216% as compared to 61% for all credit unions nationally.

Included below are comparative facts about banks, savings institutions and credit unions data as of June 1997. There are approximately the same number of credit unions and banks plus thrifts. Banks and thrifts' have assets totaling 16 times the credit union movement. Forty seven percent of the 11,591 credit unions have less than $5 million in assets; 0.5% of the banks do. This looks like a "David and Goliath" fight from these figures.
(JUNE 1997) 

Comparative Data 







Banks & Savings 
Number of Institutions  11,591  9,308  1,852  11,160 
Members (millions)  71.7  NA  NA  NA 
Total Assets 
($ billions)
$351  $4,771  $1,030  $5,801 
Avg Assets/Institution 
($ millions)
$30  $513  $556  $520 
Annual Asset Growth (Prev 5 Yrs)  6.2%  6.8%  -0.9%  5.1% 
Total Savings & Deposits 
($ billions)
$308  $3,280  $720  $4,000 
Total Loans 
($ billions)
$226  $2,867  $694  $3,561 
Institutions Under 
$5 million (Number)
5,477  50  6  56 
Institutions Under 
$5 million (Percent)
47%  0.5%  0.3%  0.5% 
Net Income  

(1st Half Annualized $ billions) 

$3.6  $58.3  $9.4  $67.7 
Net Income 

(12 months ending June, 1997) 

$3.6  $56.0  $6.7  $62.7 
Source: NCUA, FDIC

Let's look closer at the growth figures. Banks like to tell the world that credit unions are growing tremendously, but they talk in the absolute dollar figure of credit unions having over $35 billion in assets. The figure that shows our relative competitive position vis-a-vis the banking industry is to compare the market shares by assets of the credit unions versus the banking industry. The chart below shows that while credit unions nominally look to have gotten a larger segment of the market place vis-a-vis banks, the reality is that credit unions held 2% of the household financial assets in 1980 and hold 2% today. The chart also shows that banks' growing competitive threat in the last 15 years has been mutual funds, not credit unions.
Assets in Banks and CUs  1980  June 1997 
Credit Unions  4%  7% 
Banks  96%  93% 
Household Financial Assets  1980  June 1997 
Credit Unions  2%  2% 
Banks*  23%  22% 
Savings Institutions  17%  4% 
Mutual Funds (nonbank)  3%  15% 
Corporate Stocks  26%  37% 
All Other  29%  20% 
TOTAL  100%  100% 
* Includes bank proprietary mutual funds and personal trusts 
Sources: Federal Reserve, American Banker (August 13, 1997).

The consumer loan market is the bread-and-butter business of credit unions, and our percentage of that business has slightly dropped in the last 17 years, while banks' percentage has grown, as show in the chart below:
Institutions  1980  June 1997 
Credit Unions  13%  12% 
Banks Issued:  50%  57% 
    Of Which: 
    Retained by Banks 
50%  43% 
    Sold as Securities 
0%  14% 
S & L's  6%  4% 
Finance Companies  17%  13% 
Non-Bank, Non-CU Securitized Pools  0%  9% 
Nonfinancial Business 
(Dept. Stores, Gasoline Cos, etc.) 
14%  8% 
TOTAL  100%  100% 
Source: Federal Reserve

One other issue bankers have been raising to members of Congress about credit unions involves the amount of business lending done by credit unions. It is minuscule. It amounts to less than 1% of assets. Business lending by credit unions to their membership typically involves automobiles, vans, duplex/fourplex rental properties, and tractors and other agricultural loans. Remember, certain credit unions were chartered decades ago to provide services to farmers and small business. Although business lending has always been very limited by most credit unions, in the mid-1980's NCUA passed stringent regulations which restrict business lending to a great degree and require the credit union to demonstrate it has the necessary expertise to make safe and sound business loans.

The real question is, how are banks hurt by NCUA's select group policy? The answer as shown by the data: Banks are not harmed by credit union competition (and our charts above on rates and fees show, consumers are helped by the competition). In 1997, the sixth consecutive year for bank profits, banks have garnered an estimated $58 billion in profits.


In our testimony last year, we included 10 pages answering Chairwoman Roukema's questions of: "Should credit unions be subject to the same type of taxation as banks and thrifts? Should taxation depend on whether the credit union serves one group or more than one group?" You will hardly be surprised to be reminded that CUNA testified in strong opposition to taxation. We certainly think that resolution of the field of membership issue should not be entangled in the debate on taxation of non-profit institutions. Looking at a list of the top ten largest credit unions in the United States, over half of them do not serve multiple groups. If the link to taxation is serving SEGs, do the bankers say these largest credit unions without SEGs should or should not be subject to taxation?

Under the Clinton Administration, the U.S. Treasury Department has not recommended the taxation of credit unions. Moreover, the Republicans and Democrats in Congress do not seem inclined to impose new tax burdens at the time our country is finally running a surplus. Taxation would harm credit unions and ultimately burden consumers as credit unions' focus inevitably had to change.

Unlike commercial banks, credit unions are not able to issue stock to produce capital. They must accumulate capital from earnings. If credit unions were taxed, their ability to build capital would be impaired because taxes would be paid from net income. As not-for-profit cooperatives, credit unions are unique among depository institutions. Taxation would push credit unions toward a more bottom-line orientation, robbing consumers of the one financial institution which has long had their best interests in mind.

Since credit unions cannot issue stock, taxation would come out of the reserve cushion that they maintain for unexpected downturns in the economy or unpredictable changes in the marketplace. According to a study prepared for the Filene Research Institute in 1991 entitled "Taxation of Credit Unions," taxing credit union income would result in:

o More mergers, perhaps forced by regulatory agencies.

o Fewer credit unions chartered due to the increased cost of raising capital to safe levels.

o A higher failure rate among new credit unions; and increased risk-taking by credit unions.

The Institute's study concludes: "From a public policy viewpoint, the benefit of increased tax revenue from credit unions would be traded off against new incentives for increased risk in credit unions."

Removing the tax exempt status of credit unions could have a damaging effect on consumers:

o Taxation could increase the pressure on credit union managers to eliminate free and unprofitable services.

o Small loans, financial counseling, small share draft accounts and loan rebates could be among the victims of such pressures.

o Loan rates could rise and interest on savings could be reduced.

o Taxation could encourage managers to seek more risky investments.

o The overall safety and soundness of the credit union movement could be jeopardized by the impact of collective decisions to increase yield by making riskier loans.

The absence of such pressures are, in part, responsible for the movement's healthy financial condition, particularly in relation to profit-driven banks and savings and loans. In addition, the motivation of credit union volunteers would be undermined by taxation. The "not for profit, but for service" credo of the movement would be tempered. Minimizing taxes could become as important in credit union decision-making as the needs of credit union members.

Taxing one segment of the movement would undermine a tradition of larger credit unions helping their smaller counterparts through the sharing of personnel, office space, equipment and expertise. Any plan linking taxation to size would penalize efficient managers, discourage smaller institutions from expanding, and overall, curtail the movement's ability to grow and fulfill consumers' demands for reasonably-priced financial services. Furthermore, there is no evidence to suggest that credit unions stop behaving like credit unions once they reach a certain size. A proposal to tax any credit union opens the door to taxation of all credit unions at both the federal and state level. Credit unions are a movement, not an industry, because they operate in a cooperative system, and one part cannot be fundamentally changed without undermining the whole system.

As an aside before leaving one of the banking industry's favorite ways to "level the playing field" (i.e., by taxing credit unions), we feel we should mention the community bankers' new-found tax break: Subchapter S status. A 1996 change in the tax law allows banks with fewer than 75 stockholders to convert to "Subchapter S" status and thus stop paying taxes at the corporate level. A Grant Thornton survey indicates that by the end of 1998, as many as 2,000 banks (over 20% of the entire banking industry) will use the new "Subchapter S" provision to change their corporate structure to avoid taxes. The first bank that made the conversion was a $1.3 billion bank in Texas. There are only 14 credit unions serving consumers in the country that are larger than that Texas bank!


Bankers like to cite that credit unions are subject to fewer regulatory requirements than banks, but the only regulation they ever cite is the requirements of the Community Reinvestment Act (CRA). CUNA's February 1997 subcommittee testimony contains a lengthy recitation of the regulations federally chartered credit unions are subject to with a comparison of consumer protection and IRS reporting requirements with the banking industry's requirements. Not surprisingly, the regulatory requirements are virtually identical.

As much as the banking industry has objected to the CRA requirements over the years, they approach with enthusiasm the idea of subjecting credit unions, and others, to coverage. Imposing CRA rules on credit unions as a "compromise" to the field of membership dispute makes no sense. The majority of credit unions -- occupational FCUs serving one sponsor, federally chartered community credit unions, and state chartered credit unions -- are not even affected by the Supreme Court ruling, so the "compromise" would extend far beyond the group of credit unions needing relief from the court ruling.

Even more telling is that credit unions were never part of the problem that gave rise to the CRA law. CRA was enacted in 1977 to require banks and savings and loan associations to meet the credit needs of the local communities in which they are chartered. The legislative history shows that banks and thrifts were taking local deposits and making loans only in profitable areas, often outside the local community. This type of lending practice is not possible for credit unions because by statute credit unions can only lend to their depositors/members. Consequently, Congress did not include credit unions in the Community Reinvestment Act in 1977. We like to say that "credit unions are CRA in action!"

The CRA involves four basic requirements which banks must follow to be in compliance. Due to the unique structure of credit unions, these requirements would be difficult to implement consistent with the credit union charter, and result in little or no benefit to consumers:

(1) Banks must delineate the local community that comprises its service area, without excluding low- and moderate-income neighborhoods. Credit unions do not need to identify their community because that function is accomplished through their delineated field of membership. Credit unions can only make loans to people within their defined field of membership, not the general public. Even credit unions designated "community credit unions" can only serve the people who live or reside within the community specifically delineated in the credit union's charter.

The field of membership requirement ensures that funds flow back into the "community of people" from whom credit unions take deposits. If the people within the field of membership, or even a segment within the field of membership, believe that they are not receiving adequate credit union services, they can request that the regulator allow them to obtain credit union services from another credit union, as well as object to their member-elected board of directors.

Because of field of membership requirements, there is no standard measure to demonstrate how much credit unions contribute to their geographic communities. For example, there are many credit unions that serve only employees of one or more sponsor organizations. Many of those employee/credit union members do not live near the credit union and may live in other states or countries and yet maintain accounts at the credit union that serves their company. Defense department employee credit unions, with a world-wide membership of many thousands, are a good example. Fairly defining a geographic community for a credit union with a large, diverse and dispersed field of membership would be a difficult, if not impossible, task. Only a small percentage of credit unions hold community-based charters. Those credit unions receive shares and make loans within their community as defined by their charters.

(2) The bank's board of directors must adopt a CRA statement for each delineated community that includes the types of credit extended within that community. Because each credit union is a cooperative institution, each exists only to serve the needs of its members. A credit union's board does not need to develop a statement explaining how it will serve its members' loan demands -- the business plan of the credit union must reflect the strategy of the credit union to do so. Moreover, the board of directors of the credit union are volunteering their services to make sure that the credit union's defined field of membership is well served. The board has no personal pecuniary interests and no separate stockholders to appease. All the benefits accruing to the credit union are shared by the membership in terms of dividends, lower loan rates, or loan rebates.

(3) The third requirement states that banks must keep files of any signed and written comments received from the public within the last two years relating to any CRA statement or to the bank's performance in meeting community credit needs. Credit unions are member-owned and democratically controlled. They do not need to be forced to collect and review comments on their ability to meet members' loan needs. Every member has the ability to influence the course of the credit union operations, and unresponsive boards will be challenged in future elections.

(4) The fourth requirement simply provides that banks must post CRA requirements in their lobby. (A number of credit unions do not even have publicly accessible lobbies.)

The state of Massachusetts has had a state CRA law since 1982, but compliance has been a challenge for state-chartered credit unions in Massachusetts. As illustrated above, the factors simply do not adapt themselves easily to credit union operations. Neither NCUA nor state regulators have received complaints of a CRA nature about either credit unions with community charters or those with multiple groups in their fields of membership. The annual survey of financial institution customer satisfaction by the American Banker newspaper consistently rates credit unions ahead of banks and savings and loan associations.

Banks themselves have been telling Congress for years that they think the Community Reinvestment Act is overly burdensome and costly, yet they are also expending a great deal of time and energy to bring other institutions under this law. To fully comply with CRA, credit unions would need expanded powers, specifically expanded lending authority to make all kinds of business loans and the removal of geographic limitations on membership. This membership expansion is ironic because banks are also expending a great deal of resources around the country suing credit unions due to field of membership expansions. The AT&T Family Federal Credit Union lawsuit has halted multiple group federal credit unions' efforts to reach out and add low-income communities to their membership.


When bankers complain about the regulation of credit unions as compared to banks, they conveniently leave one thing out: The powers of credit unions are far more limited than the powers granted banks. And the gap between credit unions and banks is getting larger, not smaller. NCUA is extremely conservatively in expanding credit union powers, whether by regulation or by requesting Congress to amend the Federal Credit Union Act. The banking regulators, on the other hand, have increasingly become the cheerleaders for the banking industry, not only by their words but by their regulatory actions over the years.

Traditionally, credit unions have not been concerned about increased bank powers, as long as credit unions have the statutory and regulatory means to provide good consumer services. However, the bankers' attacks on NCUA's and state regulators' credit union field of membership policies have made credit unions question the fairness of what expanded powers bankers are obtaining and how they are obtaining them.

The banking industry has been pushing Congress for financial modernization legislation to give them the flexibility to operate efficiently and effectively in the 21st Century while attempting to thwart credit union efforts to convince Congress to reverse the court's ruling which sends credit union operations back to a 1934 construction of the statute. Even without Congressional action, bankers have had much success in getting their federal regulators interpreting the National Bank Act and the Bank Holding Company Act so effectively in their favor.

The Campaign for Consumer Choice is in the process of publishing a research paper comparing bank powers and credit union powers. The paper, entitled "The Development of National Bank and Federal Credit Union Powers Since 1935" was prepared by Kinzler & Swab. Credit unions have been exceedingly frustrated in seeing the banking industry vehemently attacking the regulatory action of the NCUA in interpreting the common bond provision of the Federal Credit Union Act while at the same time repeatedly receiving dramatic new powers by actions of the Comptroller of the Currency and the Federal Reserve Board. The paper compares bank and credit union powers and the source of new powers, whether by Congressional action or regulatory interpretation.

In the 1980's, bank regulators became extremely sympathetic to banks' desires to enter into new lines of business that had once been thought outside the business of banking. The Kinzler & Swab study shows that increases in powers for national banks and bank holding companies, particularly as a result of regulatory interpretations, have been dramatically more substantial than those for federal credit unions. Two examples the study reviews in depth are the growth of banks' securities powers and insurance activities.

For national banks, securities activities have grown to include engaging in securities brokerage, providing their customers with investment advice, securitizing debt and issuing mortgage-backed securities. Among other activities, the Kinzler & Swab study itemizes that the Office of the Comptroller of the Currency has approved the following activities:

    o Private placements (1977)
    o Creation of bonds secured by mortgage pools (1983)
    o Arbitrage of certain future contracts (1986)
    o Sale of collateralized mortgage obligations (1987)
    o Trading in foreign currency options (1989)
    o Securitization of credit card receivables (1990)
    o Repurchase agreements for government debt, government sponsored enterprise debt and mortgage debt (1993)
For bank holding companies, the expansion of securities powers has been even more notable. In less than 10 years, the Federal Reserve Board went from prohibiting the underwriting of "non-eligible" securities to permitting underwriting to constitute a quarter of a holding company's securities subsidiaries' revenue. This is an activity that once was thought to be barred by Glass-Steagall.

Looking at insurance activities, the Comptroller's Office has greatly expanded by regulation the ability of national banks to engage in such activities. The Comptroller has used a provision which permits a national bank to sell insurance in places of 5,000 or fewer people to, in effect, allow national banks to sell insurance nationwide so long as the bank has a branch in that location. The following is a list of some key regulatory expansions of national banks' insurance powers as itemized by Kinzler & Swab:

    o Sell debt cancellation insurance (1963)
    o Sell insurance from branches, as well as main offices, in places of 5,000 (1963)
    o Issue standby letters of credit to back municipal bonds (1985)
    o Sell insurance nationwide from offices in places of 5,000 (1986)
    o Sell variable rate annuities (1989)
    o Sell variable and fixed rate annuities (1990)
    o Sell credit-related insurance without regard to location (1995)
    o Use telemarketing firms located outside places of 5,000 to assist in the sale of insurance from those places (1996)
And just last week the Comptroller's Office issued a new controversial ruling that may allow national banks to sell insurance from urban areas.

As a note, federal credit unions today can only offer insurance through credit union service organizations or as a group purchasing activity. Compensation to the federal credit union in Section 721 of NCUA's regulations is severely limited, and can be as low as $4 per policy.

The study will also show an extensive difference of viewpoints regarding the interpretation of the "incidental powers" clauses between the Comptroller and the Federal Reserve Board in dealing with banks on the one hand and the NCUA in dealing with federal credit unions on the other hand. The conclusion of the Kinzler & Swab study is:

    "National banks' powers have grown greatly since 1935, largely through the actions of the Comptroller of the Currency and the Federal Reserve Board over the past two decades. Federal credit union powers have also increased, but by degree rather than kind. The bank of today is much different than the bank of 60 years ago. It can engage in activities both unknown to, and unthinkable for, its predecessor. The federal credit union of today is much more like the federal credit union of old. There has been some expansion of lending and investment authority, but the basic parameters of a federal credit union remain largely unchanged."

"Level the playing field" is the famous banker war cry. We have often suggested that if credit unions have all the advantages, banks should become credit unions. We have a quick checklist of what a bank would have to do to become a credit union, which serves as a reminder of some of the key distinguishing characteristics of credit unions:

    _ Eliminate stockholders.
    _ Turn over ownership of the bank to depositors.
    _ Give each deposit (now an owner) an equal vote, regardless of dollars on deposit.
    _ Eliminate the paid board of directors.
    _ Let the owners elect their own board of directors from among themselves.
    _ Have the new directors serve without pay.
    _ Make loans only to the depositor/owners.
    _ Return all excess income to depositor/owners in the form of better rates and fees.
    _ Eliminate many of their products and services.
Regardless of size, credit unions live within this structure and with these constraints.


The credit union movement has been a success story in the American financial marketplace. 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.

The credit union movement was very pleased to see a positive study issued by the U.S. Treasury Department in December that very accurately describes the robust financial condition of the nation's credit unions and the National Credit Union Share Insurance Fund. We are in the process of assessing credit unions' reactions to the study's recommendations and look forward to discussing the proposals with Treasury officials and members of Congress at the appropriate time.

Last year the Campaign for Consumer Choice commissioned a survey of consumers, jointly conducted by the Luntz Research Group and the Global Strategy Group. The survey reported on the attitudes of Americans about their economic well-being and how they felt about financial institutions in general. The survey found that 96% of Americans believe: "The freedom to choose where Americans will receive their financial services is important and should be strengthened and not weakened." The surveyors summarized the extensive findings by stating:

    "American attitudes toward banks and credit unions are quite easy to summarize. It is not that Americans are hostile to banks. They're not. What is clear is the degree to which Americans appreciate the advantages offered them by credit unions and that they want those advantages protected. We also know that Americans overwhelmingly believe it should be the right of any worker to join the financial institution of his or her choice -- including credit unions."
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 H.R. 1151 quickly becomes the law of the land, so credit unions can get back to their mission of serving America's consumers.


Attachment: Two-page excerpt from "A State and Regional Analysis: Effects of Public Policy on Credit Union Select Employee Groups," The Filene Research Institute, August, 1997 [State Breakdown of "Number Employed in Private Sector and Their Annual Earnings by Firm Size;" and Percent of Employees Covered by Employer-Provided Pension and Health Insurance Programs"]


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