Statement of Hon. Steven C. LaTourette
House Committee on Banking and Financial Services
March 11, 1998
I want to first thank you for responding so quickly to the Supreme Courts February 25 ruling in the NCUA v. First National Bank & Trust case, and for scheduling todays hearing. I also appreciate the opportunity to testify before the Committee.
I must admit that when my colleague, Congressman Kanjorski, and I introduced H.R. 1151, the Credit Union Membership Access Act, a year ago, I hoped like many of my colleagues on this Committee and in the House that the Supreme Court would rule differently and the legislation would be moot. Realizing, however, that an adverse ruling from the Court could be disastrous for the nations 3,500 occupation-based credit unions and their 70 million members, I felt it was imperative to have a legislative remedy prepared should the Court rule as it did.
Mr. Chairman, as you know, H.R. 1151 is hardly a radical new fix to the credit union common bond issue. Instead, it merely codifies the manner in which the National Credit Union Administration (NCUA) has permitted new employee groups to join an existing credit union for about 16 years. I also feel it is important to point out that H.R. 1151 deals solely with membership in credit unions - not taxes, CRA compliance, or a myriad of other issues. The membership issue was the root of the Supreme Court case and it is the root of H.R. 1151.
Why is it important for credit unions to be allowed to expand as they have for the last 16 years? The need was certainly illustrated in a letter I recently received from a constituent in my district, Betty Yelochen (yah-low-tian) of Mayfield Village, Ohio. Ms. Yelochen has been a member of Clark General Federal Credit Union for over 40 years, and has worked as its manager the last 19 years.
In her letter she wrote:
"Our original sponsor company, Clark Controller Co., went out of business a number of years ago. In order to survive, the Credit Union took in a number of mergers. When the policy was adopted in 1982 permitting multiple groups, we took in a number of smaller companies that couldnt support a credit union on their own. Our Credit Union is small, only $1.7 million in assets and approximately 1,300 members. All of my financing has been handled by our Credit Union. Clark General Federal Credit Union offers personalized service with minimal fees."
This particular credit union was formed 49 years ago, and today has its office on Euclid Avenue in Wickliffe, Ohio, a suburb of Cleveland. When Clarks sponsor went out of business in 1981, the credit union had between 1,200 and 1,400 members. Today, its membership stands at 1,300 -- so you can see its grown by leaps and bounds and is giving local banks a run for their money.
Its as simple as this: as members have died, they have been replaced by members from small companies, some of which join in increments of as few as four employees at a time. Additionally, in the 16 years following the relaxation of membership rules, Clark General Federal Credit has taken in a few smaller credit unions including the Curtis Employees Credit Union in Eastlake, Ohio, which was on the brink of collapse after a protracted labor strike by Curtis employees. About 230 former Curtis credit union members now call Clark General home, and are pleased to be there.
Most members of Clark General Federal Credit Union are elderly and have been members 40 years or more. This means that fewer and fewer older members need car loans; they pay cash. Also, with the number of death claims each year, this credit union and others like it must be allowed to grow or it will wither and die. It does not wish to join with a larger credit union, although it has had a number of offers over the years. The members of Clark Federal Credit Union rely on it, and they appreciate the personal service provided by manager Betty Yelochen -- the credit unions sole full-time employee, and her two part-time assistants.
"Its kinda like home," "its run on a shoestring," and "were so reserved its unreal" are phrases Betty Yelochen uses to describe her credit union.
Still, even this small credit union wants to remain viable, and to do so it has to be able to add members and add new services. It is important to note this credit union has no aspirations to offer home mortgages or even second mortgages. Heck, itd be thrilled to finally offer draft checking and ATM services. Yes, for all its supposed similarities to a bank, this particular credit union exists largely because of the low-cost loans it can provide its members, and its low delinquency rate. Its doing the same things well today it did well nearly 50 years ago.
Chances are Clark General Federal Union wont survive under current grandfathering plans, and what happens to small companies in the future if they end up shutting their doors, as Clark Controller did?
Does the Congress intend to effectively shut off credit union access to Americas millions and millions of small businesses? Are we going to deny this hard-working, prosperous and inventive workforce the ability to choose where they can conduct their financial dealings? By forbidding unrelated employee groups, each with its own common bond, from pooling together, consider exactly who we might be affecting:
Our countrys 22 million small businesses employ more than 50 percent of the private workforce, generate more than half of the nation's Gross Domestic Product, and are the principal source of new jobs.
When President Clinton announced plans to reinvent the federal government, he indicated the goal was "customer service equal to the best in business." Mr. Chairman, many credit union members believe this is precisely what they get today from their credit union, the best customer service in the business.
We are all familiar with the history of credit unions. Created as an Act of Congress in 1934 with the passage of the Federal Credit Union Act, credit unions were established to fill a niche in the financial marketplace that had theretofore been overlooked. Prior to the passage of that Act, there were certain financial services that banks were not providing, and had no interest in providing - namely small consumer loans. Credit Unions, which were organized as not-for-profit cooperatives around groups of employees or parishioners, filled the niche. Hence, if you needed a car or new washing machine and wanted an inexpensive source of credit, credit unions were the place to be.
Credit unions have obviously grown in the past 60 years, but even today they cannot compare to the enormous growth of the banking industry. Banking is a $5 trillion industry with total per-bank assets averaging $464 million, while the average credit union averages just $28 million. In 1996 the banking industry grew by more than $300 billion - nearly the amount of the total assets of all U.S. credit unions.
Despite what you may have heard in recent months about credit unions banks and credit unions are different and distinct creatures that complement each other far more than they compete.
Banks have a wide array of investment powers that credit unions do not have. They offer more products, they can form holding companies, they can raise capital by issuing stocks. And, something that is often overlooked, banks can pay their board of directors -- something youll never catch a credit union doing because they dont have paid boards of directors.
Banks also have the ability to market their products to anyone who walks in the door, whereas to join a credit union and use its services, you need to be part of a larger group with a common bond. Finally, if banks have a unitary thrift charter, they can even affiliate with commercial holding companies.
Perhaps the biggest red herring thrown into this debate is the one of taxation, and the banks argue that they cannot compete because they pay taxes. Think about the two entities were talking about here:
For me, one of the most memorable moments of the Winter Olympics in Nagano was seeing little, pint-sized figure skater Tara Lipinski standing next to that champion sumo wrestler, who outweighed her by something like 475 pounds. I think we know whos the credit union and whos the bank in that picture, and let there be no debate, if someone stands to get squashed like a bug in this scenario, it aint the sumo wrestler. Were talking sheer size.
What often is not mentioned is that credit unions need their tax-exempt status to offset the disadvantage in raising capital. Remember, credit unions cannot issue stocks like banks. Banks also seem to overlook their true disadvantage which is that they must pay dividends to stockholders. In fact, banks traditionally pay out more in dividends each year than they do in taxes.
No one blames banks for wanting to be as successful and profitable as possible. That is their charter. They are obligated to earn a profit for their shareholders. However, I find it ironic that at the same moment this Congress is feverishly working to tear down the depression-era regulations imposed by Glass-Steagall in an effort to make financial services more competitive and yes, more profitable, we would not act to modify another depression-era law to simply allow credit unions to continue to grow.
H.R. 1151 should not be considered pro-credit union or anti-bank. Instead it should be viewed as it was intended -- pro-consumer and pro-competition, both of which are good things.
Mr. Chairman, again, thank you for this opportunity to testify on this important issue. I look forward to the thoughtful and considerate questions of my colleagues.