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Supreme Court squeezes credit unions

February 28, 1998|By STEVEN T. DENNIS

Supreme Court squeezes credit unions

A Supreme Court ruling could prevent most area workers from joining federal credit unions, credit union officials said last week.

The court ruled on a 5-4 vote Wednesday that federal credit unions can't serve groups that aren't in their original charter.

Many credit unions, such as Bulldog Federal Credit Union in Hagerstown, have expanded their pool of potential customers beyond their original charter since a federal agency approved the practice in 1982.

A group of banks sued the agency, the National Credit Union Administration, over their approval of the practice.

The ruling shouldn't affect existing credit union customers, according to the American Bankers Association. The ABA said they won't request that credit unions drop all current customers not part of their original charter.

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David Barrett, president of Bulldog Federal Credit Union in Hagerstown, said he's had to turn away 10 groups representing about 10,000 people from joining his credit union since July 1996, when a lower court ruling prevented credit unions from expanding the groups of employees that they serve.

Bulldog has about 12,000 customers, about a third of whom live in Washington County, Barrett said.

Barrett said he's hopeful Congress will pass a bill, H.R. 1151, which would restore the ability of credit unions to expand the groups that they serve.

Speaker of the House Newt Gingrich, R-Ga., is one of 164 representatives who had signed on to the bill by Thursday afternoon, said Robert Steil, president of the Maryland Credit Union League.

Tri-State U.S. Reps. Bud Shuster, R-Pa. and Bob Wise, D-W.Va. have signed on to H.R. 1151. U.S. Rep. Roscoe Bartlett, R-Md., hasn't. Bartlett has instead signed on to H.R. 3265, which would make sure existing credit union customers keep their accounts but would otherwise keep the court decision intact.

Bankers view credit unions as unfair competition because they are exempt from state and federal taxes and are not-for-profit, allowing them to offer more attractive interest rates and lower fees.

"The banking industry said if you are going to look like a bank and act like a bank, you should pay taxes like a bank," said Kenneth R. Smith, a spokesman for the Maryland Bankers Association.

Smith said if credit unions want to serve more people, they could become a thrift and pay taxes.

"It's good now that there are opportunities for the playing field to be leveled," said David Barnhart, marketing vice president for Hagerstown Trust.

"We're not afraid of the competition. We just want it to be fair," Barnhart said.

Steil said credit unions shouldn't be punished for having built a better mousetrap, and said the ruling will prevent most workers from joining a federal credit union in the future. Steil said businesses with less than 500 workers can't set up their own credit union. Those smaller businesses have been partnering with existing credit unions to serve their employees before the ruling.

Barrett said Bulldog was formed in 1968 to serve Mack Trucks workers. In the early 1980s, the credit union started seeking out other companies to add to its base. The credit union now has 100 groups of customers, some as small as five or six workers, Barrett said.

Adding to the credit union's base provides a cushion against hard times and provides economies of scale, Barrett said. Before Bulldog diversified its customer base, Bulldog's fortunes were closely tied to Mack Trucks. If Mack laid off workers, Bulldog's delinquency rate went through the roof, he said.

Federal credit unions had a 4.2 percent market share in Washington County in 1996, according to a Sheshunoff survey on the banking industry.

Other credit unions in the area said they've had to shelve plans to expand because of the lawsuit.

Charlene Gaither, manager of Eastern Auto Workers Federal Credit Union, said her credit union had just started discussions with Sino-Swearingen about adding their workers as customers when the lower court ruling camed down.

Ken Watts, president of the West Virginia Credit Union League, said the whole issue comes down to greed.

"The greed of bankers and their desire to eliminate any and all competition is at the heart of this," he said. "It's a sad day for consumers when the actions of bankers takes away a person's right to choose their financial institution."

Watts said banks have had six straight years of record profits and shouldn't need to put the squeeze on credit unions.

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