Does Supreme Court Credit Union Ruling Affect You?
Wednesday’s Supreme Court ruling that credit unions cannot accept new members from outside traditional membership pools will affect 340 of the 735 credit unions that currently operate in California.
Will it affect you personally? Here are answers to key questions:
For the record:
12:00 a.m. Feb. 27, 1998 For the Record
Los Angeles Times Friday February 27, 1998 Home Edition Business Part D Page 3 Financial Desk 2 inches; 47 words Type of Material: Correction
Credit unions--In Thursday’s editions, an article on the impact of a U.S. Supreme Court ruling on credit unions implied that two California-based credit unions, Golden One Credit Union and Patelco, would be affected by the ruling. The two credit unions are state-chartered. The ruling applies to federally chartered credit unions.
Question: What did the Supreme Court do?
Answer: It ruled that the law that created credit unions does require a “common bond” of membership, such as belonging to the same company or profession. Thus, credit unions must either stick to tightly knit groups or get Congress to change the law.
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Q: Will I be forced to give up my credit union membership?
A: No. Bankers have promised that they will not try to force current credit union members to give up their memberships. However, certain credit unions may be barred from adding members, and all credit unions would be barred from adding groups that do not share a common bond with current members.
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Q: Is Congress going to change the law?
A: It might. One bill that would allow expansion beyond common bonds has already been introduced. However, bankers say they will fight it unless credit unions are forced to follow the same tax laws and community lending standards as the banking industry. If credit unions did have to pay taxes and adhere to certain federal lending standards, they would face higher operating expenses, which would presumably be passed on to members in the form of hiked fees and higher loan rates.
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Q: Why are just 340 of the state’s credit unions affected and how are they affected?
A: These are the credit unions that have more than one common bond of membership. The largest in the state include the Golden One Credit Union, which serves government employees and about 900 unrelated groups, and Patelco, which started out serving employees of Pacific Bell but now includes more than 100 additional groups.
They will be unable to add new groups to their membership.
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Q: What was the Supreme Court ruling all about?
A: Banks and credit unions have been doing battle since 1982, when credit union regulators opted to vastly expand the groups of people who would be allowed to join specific credit unions. Before, credit unions were only accessible to tightly knit groups of workers who had a common bond.
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Q: Why did credit union regulators decide to allow credit unions to expand outside of groups with a common bond?
A: Many companies started to jettison workers in the early 1980s, which caused many credit unions severe financial distress. Suddenly, there were no new depositing members and many current members were out of work and unable to pay on their loans. Regulators responded by allowing certain credit unions to throw open their doors to small companies that didn’t have a credit union. Also, credit unions that served different groups were allowed to merge. In the end, the “common bond” of membership all but ceased to exist.
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Q: Why do the banks care?
A: Eliminating the common bond requirement allowed the credit union industry to grow at a dramatic pace. Since 1991, the industry has doubled its membership and assets. A few credit unions have gotten so big that they are able to compete directly with banks by offering branch-banking services and a variety of loans.
However, unlike banks, credit unions are exempt from federal taxation. That allows them to offer loans at lower interest rates and charge less for basic banking services, such as checking and saving accounts. Bankers complained that this was an unfair competitive advantage and that credit unions should either be forced to stick to their original purpose--serving people with a common bond--or start to pay income taxes.
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Q: What’s the advantage of credit union membership?
A: Purely financial. Credit unions are far more likely than banks to offer free checking and savings accounts, and they generally offer lower rates on loans, according to a study jointly sponsored by the Consumer Federation of America and the Credit Union National Assn. Specifically, the study found that credit union fees are about 40% lower than bank fees.
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Q: Are credit unions always a good deal?
A: No. While the average credit union charges less for many of the same services, some charge as much--or even more--than some banks. As with nearly all consumer goods and services, you’d be wise to shop around for the lowest rates.
However, don’t bother to check rates with all credit unions. Only check with any credit union that allows you to become a member.
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Q: How do I know if I can join a credit union?
A: Check with your employer and professional groups that you have joined.You can check with your city council to see if your community supports such an institution.
* CREDIT UNIONS: Nation’s high court imposes “common-bond” limits on membership. A1
