President Clinton signed H.R. 1151, the Credit Union Membership Access Act, in August, after the bill passed overwhelmingly in the Senate (92-6) and the House (411-8). The new law overrides a Supreme Court decision in February that the National Credit Union Administration, which charters credit unions, had overstepped its legal authority by allowing credit unions to seek members outside their common occupational, employment or geographic bounds. "Clearly this [new law] will expand access to credit unions," applauds Stephen Brobeck, executive director for the Consumer Federation of America.
Credit-union activists argued that the Supreme Court ruling would have barred 20 million of the 70 million current members from access to the nation's 11,500 credit unions. Banking lobbyists countered that H.R. 1151 would dilute the original intent of the 1934 act establishing credit unions for low- and moderate-income consumers who had little access to banks at that time.
Credit unions responded that changes in the economy in the 1970s and early 1980s-specifically widespread corporate mergers and high interest rates-changed their membership base, obliging them to seek new recruits. Banks charged that not-for-profit credit unions enjoy an unfair competitive advantage because they are tax-exempt, and can thus offer members lower fees and interest rates.
Now the issue has been decided by Congress (and the Supreme Court acknowledged in its February ruling that Congress would have the last word). "The whole credit-union community is standing with one foot in the air waiting to move on this," according to Ken Robinson, president and CEO of the National Association of Federal Credit Unions. NCUA is expected to write new rules to implement the law later this year. Approvals for new and expanded credit unions could be issued as early as January.
That's important to small and growing companies because, until the law was clarified, credit-union membership for employees at firms with 500 workers or fewer was an iffy proposition. Such firms aren't large enough to support their own credit unions, and the high-court ruling effectively banned credit unions from supporting more than one group.
Now, according to an analysis by university economists and the Filene Research Institute in Madison, Wis., 62.8 million employees of smaller firms will have access to the same credit-union benefits-lower-interest loans, lower fees-enjoyed by better-compensated, big-company workers. (The numbers show an average of $25,046 annually at under-500 employee businesses vs. $31,214 in over-500 firms).
Bank representatives range from resentful to resigned over the issue. "I just find it ironic that so many small-business groups lined up behind credit unions on this issue" when many also claim to be opposed to corporate welfare, such as tax exemptions, says Virginia McGuire, spokeswoman for the American Bankers Association. She says ABA will remain vigilant for opportunities to raise credit unions' tax-exempt status in Congress again.
Fritz Elmendorf, spokesman for the Consumer Bankers Association, says he understands the frustration felt by smaller institutions and "community banks," the rehabilitated name for savings and loans. CBA, representing the nation's 700 biggest retail banks, largely passed on the issue because a "$100 billion-bank complaining that a $200 million-credit union has an unfair advantage is just not the best face to put on it."
But Karen Kerrigan, president of the Small Business Survival Committee in Washington, D.C., recalls, "It was a very vicious battle." Banks and credit unions flew in lobbyists to schmooze with lawmakers. At least seven new credit union PACs were formed to do battle this year, according to the Center for Responsive Politics. Credit unions donated almost $800,000 to federal campaigns in the six months ending June 30. Bank contributions specific to the credit-union issue could not be culled, because so much more financial legislation is pending this year.
Kerrigan, whose group sided solidly with credit unions, sees this as a big win for small business. Yet, she adds, "I don't think the credit unions would have fought this so hard if they hadn't seen that there was such a market for them among small businesses." Credit-union representatives such as NAFCU's Robinson say they'll encourage member institutions to reach out to smaller companies now that the regulatory road is clear. But they are scant on details. "There is a gap there," Kerrigan notes. "There is an opportunity for someone. The question is, who's going to take it?"