Statement of Representative
House Committee on Banking and Financial Services
Hearing to review the Supreme Courts ruling regarding the credit union common bond requirement and the appropriate congressional response.
March 11, 1998
Thank you Mr. Chairman and members of the Committee, for the opportunity to testify in support of protecting current credit union members and ensuring the growth of our nations consumer-banking services industry.
As you are aware, the recent Supreme Court ruling in favor of the banking industry would significantly change how and where consumers obtain their financial services. For the past 16 years, millions of Americans faithfully invested their earnings in credit unions only to suddenly face the prospect of losing their membership status.
The ruling has the potential to affect nearly 20 million members in about 3,500 federally-chartered credit unions that serve multiple groups. The banking industry claims the actual number of credit unions directly affected is minimal, but more than half of all credit unions with federal charters serve multiple groups. There is also the impact of the loss of millions of future members if limitations are placed on which new groups are entitled to participate.
What is not clearly understood is that consolidation of small credit unions in a single cooperative deposit and lending service organization has been critical to the survival of credit unions as big banks came to dominate many markets. For this very reason in 1982, the National Credit Union Administration, which oversees federal credit unions, allowed service to more than one occupational group so long as each had a common bond. The viability of many credit unions depends on the ability to expand. Although I understand the concerns of the banking industry, we must not approve any policy that threatens the soundness of credit unions, the majority of which are small in size.
Currently, companies with fewer than 500 employees are not allowed to form their own credit union. With a majority of our work force in small and medium-sized businesses and the growth in entrepreneurial and innovative business, upholding the high courts ruling to restrict the field of membership hinders the access of these companies to affordable financial services. Small, entrepreneurial businesses have long been the backbone of our nations commercial growth, and they must be provided with reasonable financial options to be successful.
As an alternative to the for-profit banking system, credit unions offer an array of services and loans at reasonable rates to persons who are often unable to obtain them elsewhere. The fact is that unlike banks, credit unions return operating income to members in the form of lower loan rates and fees and higher savings rates because they are member-owned, not-for-profit organizations that do not have the expense of paying stockholders.
Also, a healthy competition among financial service providers is good for the consumer and good for the economy. Although credit unions have broadened their services to meet the demands of consumers, banks have continued to enjoy rapid growth and record profits at the same time they were claiming to be hurt by the growth of credit unions. This is especially true if you consider that U.S. banking institutions hold 93 percent of all savings and deposits in U.S. financial institutions while credit unions have steadily held 2.1 percent of all U.S. financial assets for years.
For example, the state of Illinois has benefited greatly from the opportunity to create cooperative deposit and lending services. Since 1925, credit unions have had a strong presence in Illinois with 2.4 million members in 684 credit unions. I understand the important benefits credit unions provide members in the 17th District of Illinois, which I represent. Nearly half of my constituency, more than 230,000 people, are served by 48 credit unions in my district.
Furthermore, the Supreme Court ruling would affect 65 of Illinois federally-chartered credit unions, of which about 200,000 members are not part of a traditional membership group and may be expelled. There is also the concern the ruling could expand the limitations on the field of membership to state-chartered credit unions, which make up 80 percent of Illinois credit unions.
Although the American Bankers Association has informally backed away from their earlier demand to divest members signed up under the 1982 National Credit Union Administration multiple-group policy, the lower courts still have yet to fully determine how the Supreme Court ruling will be implemented. Therefore, divesture of membership and the impact on state charters continues to be a threat. Congress must act quickly to resolve the field of membership issue.
To address these threats, H.R. 1151 or the "Credit Union Membership Access Act," merely codifies policy established by the federal government and followed by credit unions since 1982. Credit unions are not asking for any new powers. As one of more than 180 cosponsors, I urge the Committee to report this act and allow the full House to consider this important issue.
Credit unions have long played a major role in the American way of life. As when they were first established, many credit unions continue to serve those with low- and moderate -incomes. But the key to survival for any industry is the ability to adapt. The financial services arena has evolved, and to survive, credit unions must be permitted to evolve with it. To preserve the viability of credit unions Congress must enact flexible policies that allow credit unions to continue the services that consumers have come to expect.
Mr. Chairman, I commend you for holding this hearing so promptly in response to the Supreme Courts ruling. It is clear that the resolution of the common bond requirement for credit unions is long overdue. Many of our communities depend upon the affordable services credit unions offer and we cannot let them down. We must realize that this issue is not just how the relationship between banks and credit unions is best regulated, but how is the public best served.