As Changes Loom, Credit Union Plans for Future

By DON LEE

Nov. 5, 1997 12 AM PT

TIMES STAFF WRITER

MORENO VALLEY —

As thousands of credit unions in the nation await a crucial Supreme Court ruling on their membership eligibility, March Federal Credit Union here isn’t just sitting around and praying. In many ways, it has already prepared for the worst.

The credit union still looks like a financial outpost in the hinterland of Riverside County. Its sole branch sits outside the main gate at March Air Force Base, where seven enlisted men reached into their pockets to form the credit union in 1953.

But in recent years, as the base underwent a dramatic post-Cold War downsizing that threatened the credit union’s survival, March Federal responded by becoming a much more convenient and technologically advanced institution.

It opened on Saturdays; it created a 24-hour phone banking service through which customers can apply for a loan at any time; it formed alliances with nearby auto dealers to market its car loans to consumers. By the end of this year, March customers will be able to bank anywhere in the country via the Internet, says Bob Cameron, the credit union’s chief executive.

“The board’s worried and I’m worried,” Cameron says of the impending Supreme Court decision, expected early next year. But he added, “We will survive.”

Not all of the 350 credit unions in California that will be affected by the ruling are so confident. If the high court, which heard arguments last month, agrees with a lower court that membership at federally chartered credit unions should be limited to the “common bond” of a single employer or association, March and others like it will find the main road to growth blocked.

Since the mid-1980s, credit unions nationwide have aggressively recruited millions of members from outside their core employer groups. In states such as California, that has been pivotal to the survival of credit unions tethered to the shrinking defense sector. Some of the aerospace credit unions merged with others after mass layoffs and closures at major corporations.

The banking industry, which initiated the suit that wound up at the Supreme Court, has bitterly argued that this recruitment gives the federal tax-exempt cooperatives an unfair advantage in the marketplace. Moreover, credit unions are increasingly serving higher-income households, not the underserved, complains Larry Kurmel, executive director of the California Bankers Assn.

David M. Smith, an assistant professor of economics at Pepperdine University in Malibu, says his research suggests otherwise. Overall, he says, the multi-employer groups that have been added to credit union eligibility bring in people who work for small businesses and who tend to earn less. “The original intent of the federal credit union charter was to assist people with modest means,” he says.

There is no dispute that many credit unions in California, particularly big ones, have prospered over the years, thanks to the multi-employer additions. Their assets have more than doubled from a decade ago, and total membership, though fluctuating a bit, has grown almost 20% from 1986, to 7.6 million members. Even so, credit unions have made little gain in market share, whereas banks have widened their lead in the last few years, largely at the expense of the shrinking savings-and-loan industry.

Smaller credit unions such as March, which has assets of about $150 million, have embraced outside groups. By knocking on doors of mom-and-pop businesses and other public employers in the Moreno Valley area, it has enlisted 6,000 new members from 75 groups outside the base. That’s helped boost its membership to 30,000 from 24,000 a decade ago.

But that’s only part of the story. Even with those outside members, the credit union could not have grown in the face of devastating cutbacks at the base had it not made internal changes in its services and marketing. Over the last three years, March Air Force Base has shed two-thirds of what had been 7,000 military and civilian employees as it transformed itself into a base for reserves.

So March Federal Credit Union aggressively sought out the family members of any active or retired base employee. It installed its first automated teller machine inside the base to attract the so-called weekend warriors--pilots who fly in just for the weekend for training. Telephone banking and other services also have helped March Federal retain some customers who might have left the credit union after relocating to other bases. Next year, it plans to hook up with about 200 other credit unions to offer shared services.

The Supreme Court case has hastened March’s shift to electronic banking, Cameron acknowledges. If the court goes against credit unions, he says, March won’t grow much. But it won’t fade away, either, he says.

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Creditable Gains

Although shrinking in numbers, credit unions in California have grown in assets and membership. Yet they have gained only slightly in market share as banks have widened their lead over other financial institutions.

Share of Deposits in California

Banks

1996: 60.6%

Savings and loans

1996: 31.7%

Credit unions:

1996: 7.7%

Credit Unions in California

Number of credit unions

1996: 737

Assets, in billions

1996: $46.1