Rep. Paul E. Kanjorski
House Committee on Banking & Financial Services
Hearing on H.R. 1151
The Credit Union Membership Access Act
March 11, 1998
Mr. Chairman, I appreciate the opportunity to testify today with my friend and colleague Steve LaTourette of Ohio on behalf of the bipartisan group of more than 185 Members who are sponsoring our bill, H.R. 1151, The Credit Union Membership Access Act.
I know that you will hear from a number of very well intentioned Members here today, but I want to reiterate that our bill, H.R. 1151, The Credit Union Membership Access Act has the largest, and broadest, bipartisan coalition of Members supporting it. It is the only bill which codifies the unanimous, bipartisan position of the National Credit Union Administration (NCUA) during the Reagan, Bush, and Clinton administrations, and which does not contain any extraneous matters. It is the only bill that is supported by Members of Congress from all across our nation and all across the political spectrum from Speaker Newt Gingrich to Minority Whip Dave Bonior. It is the only bill that has been endorsed by the Consumer Federation of America.
Mr. Chairman, I know there are some people who want to turn back the clock and make credit unions live under the Supreme Courts razor-thin 5 to 4 interpretation of a 64 year-old statute. To those who yearn for the "good old days" of the Great Depression, let me read to you what federal branching rules were for banks in the 1930s:
(c) A national banking association may, after the date of the approval of this Act, establish and operate new branches within the limits of the city, town, or village in which said association is situated if such establishment and operation are at the time permitted to State banks by the law of the State in question.
(d) No branch shall be established after the date of the approval of this Act within the limits of any city, town, or village of which the population by the last decennial census was less than twenty-five thousand. No more than one such branch may be thus established where the population, so determined, of such municipal unit does not exceed fifty thousand; and not more than two such branches where the population does not exceed one hundred thousand.
(e) No branch of any national banking association shall be established or moved from one location to another without first obtaining the consent and approval of the Comptroller of the Currency.
What does this mean? It means that if banks were required to roll back their branching powers the same way they are asking credit unions to roll back their authority to expand, then there would be no interstate banking, no nationwide ATM networks and no branches outside the town, city or village where a bank is headquartered. In unit banking states like Texas and Illinois, among others, NO branches would be allowed. In my entire congressional district, NO bank could have more than ONE branch.
Does this make sense? Of course not. Banking laws have been modernized and updated repeatedly since the 1930s. Banks have repeatedly been given new powers and authorities. We should not require credit unions to live in the 1930s.
The LaTourette-Kanjorski bill, H.R. 1151, is essential to the long-term survival of credit unions and the safety and soundness of both credit unions and the National Credit Union Share Insurance Fund. This is a safety and soundness issue.
If there is a single lesson this Committee should have learned from the thrift crisis it is that concentration increases risk and diversity reduces it. Limiting credit unions to a single employee group significantly increases risk for both the credit union, the Share Insurance Fund, and ultimately for U.S. Taxpayers. If a company goes out of business or has major layoffs, its employees will need cash, will withdraw funds, will have difficulty repaying loans, and will seek new jobs in other locations. This will ultimately lead to the failure of the credit union because it will have an increasing demand for funds at the same time that it is losing members. A regional or national recession would pose systemic risk for the Share Insurance Fund, and thus ultimately to U.S. taxpayers.
As Members of Congress we are also well aware that an increasing proportion of the U.S. workforce is employed at small businesses. Without the LaTourette-Kanjorski bill, employees at small businesses will be effectively denied the option of selecting a credit union for their financial services. A business with 500 or fewer employees could not support a single teller, much less an ATM or a loan officer. Frankly, I doubt that 1,000 employees are enough to support a full-service credit union.
In the United States today 99.7% of all businesses employ fewer than 500 employees. Collectively these small businesses employ 52% of the private sector workforce. Without the LaTourette-Kanjorski bill these workers and their families will be effectively denied access to a credit union. This is particularly unfair and counter-productive because the employees of small businesses earn, on average, 20% less than the employees of large businesses. Credit unions were formed to help persons of small means, yet the recent court decision makes it more difficult for them to serve the people they are designed to help.
I also want to make it clear, Mr. Chairman, that merely grandfathering existing credit union members is not enough, not nearly enough. It would consign credit unions to a slow and painful death through attrition. America is a very mobile society. Unlike the 1930s, very few people work their entire lives for one company. The average American changes jobs more than seven times during their working career. When a credit union can no longer serve new members of an employee group its services to the grandfathered employees will wither and die. Branches and ATMs will be shut down, and many credit unions will no longer have the critical mass they need to support even basic services to their original field-of-membership.
Some people have suggested imposing size limits on credit unions or on the size of groups that can join a credit union. I would only point out that the largest credit union in the nation has only one common bond and is not affected by this court decision. Furthermore, the two largest banks in the nation have more assets than all 12,000 credit unions combined.
Even though credit unions have been allowed to add multiple employee groups for 15 years, they still have only 2.1% of our nations financial assets, and that figure remains virtually unchanged from the market share they had 15 years ago.
It is not necessary for us to legislate size limits for two reasons. First, the regulatory agency already has the authority to block both inappropriate charter expansions and expansions that are too rapid. Second, credit union growth is already effectively controlled by the fact that credit unions can only raise capital through retained earnings.
This last point is extremely important and highlights one of the major differences between banks and credit unions. Banks have the ability to sell stock to raise capital. Credit unions do not. This is a major advantage for banks, and it is part of the reason why credit unions need their tax exemption. Retained earnings are the only way a credit union can raise its capital.
Mr. Chairman, we hear a lot of rhetoric in this town about the proverbial "level playing field." This rhetoric is usually used to highlight only the relatively few competitive advantages credit unions have over other financial institutions. If you really want to "level the playing field," however, you will have to be prepared to: repeal the Interstate Banking Act, eliminate all bank holding companies, repeal all of the insurance and securities powers given to banks by the Comptroller of the Currency, eliminate unitary thrift holding companies and the ability of thrifts to affiliate with commercial firms, prohibit banks and thrifts from issuing stock to raise capital, and prohibit banks and thrifts from paying their boards of directors. I do not believe it would be good public policy to make these changes, but if people really want a "level playing field" that is what it will require.
While we are talking about "red herrings," we should also note that credit unions are not the only non-profit institutions that provide goods and services similar to those provided by for-profit institutions. Every day non-profit hospitals compete with for-profit hospitals. The YMCA and YWCA compete with Golds Gym. The for-profit Museum Store competes with the non-profit stores run by the Metropolitan Museum of Art and the Smithsonian. Non-profit clubs and restaurants compete with for-profit clubs and restaurants. The SPCA competes with local veterinarians. Even the Girl Scouts compete with Safeway and Giant, and Keebler and Nabisco.
For-profit institutions have co-existed successfully with non-profit institutions for generations. No one suggests that Shriners hospitals should only be allowed to treat Shriners, or that St. Marys Hospital should only be allowed to treat members of St. Marys parish. No one suggests that Girl Scouts should only be allowed to sell cookies to members of their own families. This is a "red herring."
Credit unions minuscule 2% market share is not a threat to other financial institutions. In recent years banking assets have grown each year more than the total assets of the entire credit union industry. Credit unions simply offer consumers a non-profit, cooperative, alternative for their financial services.
Studies have consistently shown that credit unions offer their members the best interest rates and lowest fees. They are more highly regarded by their members, than even most Members of Congress. We must preserve this choice for all American consumers by quickly passing H.R. 1151, the LaTourette-Kanjorski Credit Union Membership Access Act.