Senate Backs Expanded Reach for Credit Unions

The Senate overwhelmingly passed legislation on Tuesday that gives credit unions the opportunity to expand their reach, letting them resume recruiting new members among different business groups and occupations.

The measure, a major setback to banks, is similar to legislation passed by the House in April. But it is uncertain whether the House will simply pass the Senate version or insist on a conference to work out differences in the bills.

The legislation, supported by the White House, is intended to overcome a February Supreme Court ruling that federal officials had given credit unions too much leeway in expanding their memberships beyond individuals within a single company, occupation or community.

While allowing credit unions to keep their current members, the bill would restrict the size of new groups allowed access to a specific business group’s credit union.

The legislation drew sharp opposition from the banking industry, which had sought the Supreme Court ruling to help fend off competition from the 70-million-member credit union industry.

Banking groups maintain that because credit unions are exempt from federal taxes, they have an unfair competitive advantage because they can offer lower loan rates than the small, local banks with which they often compete.

Restricting membership--for example, to teachers and others employed by the Los Angeles school district--offered one way to even the competition, in the view of the banking industry. The legislation would allow a teachers’ credit union to accept members who have no connection to the school system.

“Credit unions have a tax subsidy exceeding $1 billion a year, and a hot dog vendor in any ball park pays more in federal taxes than the entire credit union industry,” said Bill McQuillan, president of the Independent Bankers Assn. of America.

He said the legislation “undermines our free enterprise system by fostering totally unfair competition using the federal tax code.”

But the president and chief executive officer of the National Assn. of Federal Credit Unions portrayed the measure as one that would expand Americans’ options in conducting personal financial activities.

“The story of this legislation is the story of grass-roots efforts overcoming big banks and big bucks,” the association’s Ken Robinson said.

Indeed, credit unions mobilized their members to pressure Congress, with a recent rally on the Capitol steps and a letter and phone-call campaign.

“This is an important win for the American consumer,” said Dan Mica, president and chief executive officer of the Credit Union National Assn.

The Clinton administration, which supports the legislation, had sought a provision that would require credit unions to follow fair-lending practices to which banks must adhere. It was included in the House version, but Sen. Phil Gramm (R-Texas) succeeded in getting it removed from the Senate version Monday.

With few congressional business days remaining before the two chambers break for an August vacation and then adjourn in early October to campaign for the November elections, it was uncertain whether the House would simply pass the Senate version and send it to the White House or insist on a conference of House and Senate members to work out differences about the fair-lending provision.

A White House official left it unclear whether President Clinton would veto the measure if it does not include what he described as the fair-lending “protection for low- and moderate-income borrowers.”

But, said Jake Siewert, a spokesman for the National Economic Council, “the president hopes we can get legislation signed this year that will protect credit unions in the wake of the Supreme Court decision.”

The Senate approved the legislation by a vote of 92 to 6. The House vote in April was 411 to 8. Both votes were well beyond the two-thirds margin needed to sustain a veto if Clinton tried to block the measure.

The Senate turned down one provision that faced particularly strong opposition from the administration. It would have exempted small community banks from a requirement in the Community Reinvestment Act of 1977 that federal regulators consider their records in lending to minorities and low-income applicants when ruling on the banks’ applications for expansion.