Cornered Credit Unions Come Out Fighting

The stiff setback that the U.S. Supreme Court handed credit unions on Feb. 25 may momentarily shackle their growth, but it has hardly stopped them in their tracks: They're mad as hell, and they're taking their case to Congress. Their goal is to convince lawmakers that in this age of impersonal megabanks, lending cooperatives are today's neighborly George Baileys.

They may just pull it off. But first they're in for a nasty brawl with the banks, which hope to unmask many of them as giant interstate combines posing as warm and fuzzy co-ops.

Under the high court's decision, employer-based credit unions will probably have to stop signing up customers who aren't employees. The case was based on an AT&T credit union in Winston-Salem, N.C.; two-thirds of its 165,000 members had no employee ties to AT&T. And there are more than a hundred big credit unions like that. The lure: Credit unions are tax exempt, so they can offer loans at lower rates than banks. The orginal intent was to provide credit for blue-collar workers unqualified for bank loans, but these days every group from pilots to pro basketball players has its own credit union. The banks squawk that their rivals have used this tax advantage to swell membership to 73 million, with $360 billion in assets.

MISMATCH? While the banking industry is footing the bill for the battle, it's community banks that are out front. They want Congress to revoke the tax-exempt status of the big cooperatives and subject them to the same regulatory oversight as other lenders. "For many community banks, this is almost a life-or-death issue," says banking consultant Bert Ely.

At first glance, it looks like a mismatch. The banking industry is a powerful force on Capitol Hill, with close ties to key congressional leaders. It forked over $13 million in campaign donations for 1996--or 17 times what the credit unions gave. Besides, the Credit Union National Assn. (CUNA) was a sleepy trade group based in Madison, Wis., until it moved to Washington in 1996. "It's a David-and-Goliath situation," says ex-Representative Daniel Mica of Florida, who heads CUNA.

Although it lacks a strong Washington presence, CUNA has unleased a grassroots blitz. Last month, 4,000 credit-union officials swarmed over the Hill with petitions signed by 2.5 million members. "There are a lot of congressmen who are going to have to compare PAC contributions against grassroots votes," says Mica. It wasn't hard to find sympathetic members: Representative Christopher B. Cannon (R-Utah) recalls how his university credit union "gave me the downpayment to buy my first house."

He has introduced a bill to prevent credit unions from losing members because of the court decision. Another, sponsored by Representative Steven C. LaTourette (R-Ohio) and Paul E. Kanjorski (D-Pa.), would nullify the ruling. It's backed by more than 170 legislators, including Speaker Newt Gingrich (R-Ga.) and Senate Banking Committee Chairman Alfonse M. D'Amato (R-N.Y.).

Hill watchers expect the banks to resort to guerrilla tactics by focusing on the Senate, where a single member can block legislation. The banks are also counting on House Banking Committee Chairman James A. Leach (R-Iowa). He has vowed to attach the LaTourette-Kanjorski bill to a broad financial-services reform measure with scant progress for passage. It would be a "kiss of death" for the credit-union initiative, says a bank lobbyist.

That's probably wishful thinking. "I don't think 70 million credit-union members are going to be very forgiving if we don't have this issue straightened out by the time we go home this fall," warns LaTourette. With support like that, credit unions may find that it's still a wonderful life.

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