Wisconsin battle could set credit union rules
unions across the country could soon be offering a lot more services
and competing directly with banks if a bitter battle in Wisconsin
goes their way.
But the banks are lined up against them, fighting
to defend what they say is their turf.
In late January or early February, legislation
to expand the reach of Wisconsin credit unions will go to the state
house. The credit unions argue that they need and deserve to have
a broader reach, but the banks say the credit unions are wolves
in sheep's clothing trying to sneak in where they are not allowed.
Both sides say the ruckus may precede similar dustups in other
Six states -- Connecticut, Missouri, New Jersey,
Oregon, Utah and Virginia -- have already updated laws to give state
credit unions the same powers as their more potent federal colleagues.
Other states are thinking about it.
But it is the Wisconsin proposal's intention
to not only do the same, but to allow state credit unions to dramatically
expand their membership and also set up for-profit subsidiaries
that has made it the most heated battleground.
What's getting people hot and bothered is Senate
Bill 274, recently introduced by Democratic state Sen. Jon Erpenbach,
which would allow Badger State credit unions to not only sign up
more members, but do new things like handle individual retirement
or benefit accounts, sell brokerage services, and merge or buy other
credit unions elsewhere in the country.
"If we let the lifting of restrictions happen
here, the other states will follow," says E. David Locke, president
of the small McFarland
State Bank in suburban Madison, Wis.
Already in Maryland the Task Force to Study
Modernization of Credit Union Law is reported to be considering
ways state credit unions could compete with the banks and the big
federal credit unions that have more leeway in their operations
than state credit unions.
The Maryland credit unions want to offer more
products and services. Among the issues the task force is considering
are allowing them to charge new fees, include unrelated groups in
their membership and make loans like their federal colleagues.
Credit unions and commercial banks have been
sparring since credit unions were first formed in the United States
in 1909. But the tension has been building in recent years with
the lifting of tight membership rules for federal credit unions
with the Credit
Union Membership Act of 1998.
"There are many people in my state that can't afford to go to
a bank, with their high fees," Erpenbach explains. "This bill is
intended to provide a wide array of choices to consumers. This will
impact people everywhere. I see it as a national trend, giving consumers
more choices than they now have."
But banking-industry representatives disagree,
and Locke says the proposed new law would "run contrary to what
credit unions were originally created for."
To the Wisconsin
Bankers Association, which is bitterly fighting Erpenbach's
bill, the changes would be akin to allowing credit unions to offer
membership based on the color of one's car or the fact that all
members have trees on their street. Utah, a state which has 12 state-chartered
credit unions, has a field of membership that the WBA claims "effectively
encompasses the entire population of the state."
To Locke, it's a simple problem: "It's about
[credit unions] acting like banks without the attending responsibility."
The responsibility to which he's referring is
taxes: credit unions are exempt from paying taxes.
"Unfair!" complain bankers like Locke, who says
his own bank makes
less money and is taxed more than local credit unions. "It's
simply ridiculous," he says.
Cherie Umbell, a spokeswoman for the National
Credit Union Administration, an independent federal agency that
supervises and insures federal credit unions and insures state-chartered
credit unions, laughs off the criticism.
"Well, sorry," says Umbell, "but Congress obviously
thought credit unions were valuable institutions that deserve different
money, little money
Umbell says "70 percent of credit unions have under $10 million
to $15 million in assets." But the Wisconsin Banker's Association
claims that in their state alone, credit union assets are $8.2 billion.
"Credit unions are cooperatives owned by members,"
Umbell says, citing a major difference between credit unions and
banks. "They don't own shares and have stock options like boards
of directors at banks, who are there just for the profit."
The banks come roaring back, spitting fire.
"Profit!" laughs Locke. "You want to talk about
profit? Look at the fancy offices credit unions are building. You
should see the extravagant buildings they have in Wisconsin. Look
at their high-paid executives. If that's not profit, I don't know
Credit unions return the fire.
"That's not true," says Mark Wolff, senior vice
president of communications at the Credit
Union National Association, a national trade organization representing
over 78 million members. "Despite what bankers might claim, we are
not here to enrich an outside group of stockholders like they are.
We are not-for-profit financial cooperatives. Also, most of our
credit unions are small businesses with volunteer board members
and sometimes volunteer workers."
When it comes to buildings, Wolff says, "we
are run by our members, so if they felt money was being squandered
they would stop it. If a credit union has a fancy building, which
is the minority, then it's because the members want it."
Sen. Erpenbach, who is a member of the State
Capitol Credit Union, in Madison, jokes, "I haven't seen any banks
being run out of little trailers like I have with credit unions."
Locke fires back with a broadside: "It's just
laughable. They attract and retain top-notch, high-salaried people
with great expertise to join their organizations. Our shareholders
mirror their members."
Now it's Umbell's turn to blaze away: "Any organization
has to make money to survive," she says. "Large organizations have
officers and managers that must be paid. Credit unions return lots
of money to their members in lower interest rates. They don't charge
21, 22 percent. We offer mortgage lending for one and one-half percent
interest. All credit unions care about is helping people get affordable
loans and excellent rates. That's where our profits go. Instead
of being afraid of what's happening in Wisconsin, the rest of the
country should be hoping it comes to them."
One of the original jobs of credit unions was to provide "character"
loans for people who wouldn't qualify for a commercial bank loan,
say their representatives. And, they say a member's desire to repay
is considered just as important as their on-paper financial ability
"It has gotten so far from that," argues Locke,
"that it's just downright ridiculous. The independent credit union
member is more affluent than the commercial bank customer."
But Wolff counterattacks, arguing, "They're
skewing their statistics. Recent studies show just the opposite."
It's also a banker myth that credit unions are
lax and basically run free, says Wolff. "We have a very stringent
regulatory structure. We can't invest in equities, can't issue stock
to raise capital and we have much tighter business restrictions.
For example, credit unions can't provide members with business loans
for commercial development."
But Locke has a counterattack of his own, and
counters, "Yeah, watch the [Wisconsin] bill change that. These new
laws will remove all boundaries from credit unions. Their field
of membership is the world and their job is making commercial loans.
Sounds like a commercial bank to me."
Wolff is ready to join the fray again.
"It's irrelevant if credit unions perform the
same services as commercial banks," he says. "They are doing so
because their members want that breadth of service."
Meanwhile the legislation gets nearer to a hearing.
And just how different would life be in Wisconsin
if it passes? One small credit union has discussed putting ATMs
in a local McDonald's.
Woliver is a freelance writer based in New York
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-- Posted: Jan. 19, 2000