Credit Unions Say Ruling Will Stunt Growth
By Michelle Singletary
Many credit union executives say their industry's growth is in jeopardy unless Congress passes legislation allowing credit unions to sidestep yesterday's Supreme Court ruling.
The high court ruled that about 3,500 federal credit unions, including 68 in the Washington area, that have been expanding by adding companies unrelated to their core charters have been engaging in an illegal practice.
But credit union executives say the consolidation and addition of unrelated companies over the past 16 years has been critical to their survival as big banks came to dominate many markets. Without such growth, executives said, they could not offer the kinds of services and products that consumers have come to demand.
The credit union industry calls the legal battle an effort by bankers to eliminate a vital competitor that often provides lower-priced loans and higher deposit rates. Bankers, however, have maintained that credit unions have taken on the characteristics of banks without being required to pay federal taxes or having costly regulatory oversight.
"It was clear to us that the large credit unions were violating the law," said Edward L. Yingling, executive director of government relations for the American Bankers Association. "We have also made it clear that we accept the competition, but those credit unions acting like banks should pay their fair share of taxes."
The court decision won't immediately affect credit union members or their accounts. Bankers and credit union officials agree it is unlikely that consumers will have to give up credit union memberships, close accounts or pay off loans early because of the ruling.
Instead, federally chartered credit unions that serve many different groups say their growth will be stunted. Already, officials say they have had to scale back marketing plans and recalculate asset growth estimates. They predict they may not be able to continue providing the technology that consumers can get at many banks.
They also believe that without competition from credit unions, banks will raise fees and ignore lower-income consumers, often a core part of credit unions' membership. "This does not mean the wholesale dismantling of the industry, but it does create significant damage," said Marcus Schaefer, chief executive of the AT&T Family Federal Credit Union, which was the target of the original 1991 lawsuit. "People should be concerned about what happened today."
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