Walking around Capitol Hill last week, trooping in and out of members' offices, were groups of people wearing buttons that said "Enough Is Enough" and bore the red-circle-and-slash "stamp out" symbol over the words that said, "Unfair Credit Union Expansion."
They were bankers, and they were -- and are -- really frosted over the number of customers they are losing to credit unions. And, as bankers have been ever since credit unions were invented, they are trying to get lawmakers to rein in the nonprofit financial cooperatives. The focus of this round is a pending bill that would extend credit unions' reach, allowing them to expand business lending to their members and offer other expanded services.
"We've launched a campaign: 'Enough Is Enough,' " said Camden R. Fine, president of the Independent Community Bankers of America, whose members were walking the halls last week. "Our concern is that you have these huge mega-credit unions with assets of more than $1 billion . . . seeking more and more banklike powers."
Bankers are so exercised that another trade group, the American Bankers Association, has made taxing credit unions and fighting their expansion one of its three lobbying "superpriorities" for 2004. The association's Charlotte Birch said the issue is high on the list because small banks continue to be concerned about it, and because credit union expansion is an "active" issue, meaning things are happening on Capitol Hill and with regulators.
The bankers are fighting an uphill battle. Not only are they Goliath going against David, but after two decades of consolidation and efforts to squeeze more profit out of their retail customers, many banks have all but driven their depositors and borrowers into the arms of credit unions.
"Unbundling" and charging for services that were once routinely free to depositors served as an effective goad to get bank customers to evaluate other alternatives.
Some depositors turned to money market mutual funds, many of which now offer checking services and ATM cards. Others, including borrowers, turned to credit unions.
There are, of course, many small banks, including a number in the Washington area, that offer the fast, friendly service that the industry advertises, and where "friendly banker" is not an oxymoron. Customers of these institutions seem more than happy with them.
And a growing number of big banks are starting to offer low-fee or no-fee accounts. But in a tacit admission that such offers have in the past been filled with tricks and hidden fees, a lot of banks feel it necessary to include "no, really, we mean it this time" disclaimers in their advertising.
Unfortunately for the banks, their ex-customers who discovered credit unions love them.
Credit unions, as cooperatives, are membership organizations, and under law are open only to people in their "field of membership." Traditionally, that meant working for the same employer or having some other "common bond" such as living in the same community. But maintaining the old "one employer, one credit union" standard proved problematic as companies folded or moved plants abroad, so regulators began interpreting the law to allow a single credit union to have groups with more than one common bond.
The banks eventually sued, and in 1996 won a court ruling that the "one employer, one credit union" requirement was in the law and the regulators couldn't get around it.
The victory proved Pyrrhic in the extreme. Credit unions, their members and regulators got Congress to enact the liberalization that regulators had been working toward, and the cooperatives have been expanding rapidly ever since. There are now 85 million credit union members nationwide in 10,000 institutions.
The cooperatives' appeal is obvious. In effect, members make deposits that the credit union lends to other members. As nonprofits with no stockholders to feed, credit unions say, they are able to offer higher interest rates to depositors and lower ones to borrowers, and to offer services free or at lower fees. And surveys repeatedly have backed up these claims.
Banks' answer is to tax credit unions. They don't have profits, but they do have income, which they use to build reserves against bad loans and as capital for expansion. ICBA's Fine said bankers are not targeting traditional modest-size credit unions that "are adhering to the original concept of a single common bond." It's the ones that have become big full-service financial institutions they want to stop, he and the ABA's Birch said.
"We're pretty fired up about this. This continued unbridled concentration at the top of the credit-union chain is just out of control," he said.
Credit unions can't issue stock to raise capital, so taxing their retained earnings would be very damaging if not destructive, and that is exactly the banks' aim, credit unions say. That would cut off a source of low-cost banking services for individuals and small business, they say.
"Credit unions have always said there should be the opportunity for Americans to do their [banking] business with a for-profit," said Daniel A. Mica, head of the Credit Union National Association, which represents more than 90 percent of the nation's credit unions. "We don't go after them, but they go after us. The tax issue, the size issue is a new way to start an old argument. People need an alternative, and we do believe [we offer one] in the cooperative movement. It's certainly not a business for us -- it's a philosophy, a belief."
The ratio of active workers to retirees and others eligible for benefits but not yet drawing them has fallen to roughly 1 to 1 in the traditional pension system -- down from more than 3.5 to 1 in 1980, according to the government's pension insurance agency.
The Pension Benefit Guaranty Corp., which pays benefits up to certain limits for pension plans that collapse, also said it has been hit with $11.2 billion in claims for failed pensions in the past three years, which is 63 percent of all claims filed in the agency's 30-year history.
The House last week approved a bill that would allow small businesses or small-business groups to band together to buy health insurance for the businesses' workers. The measure, backed by President Bush, passed by a vote of 252 to 162. More than 43 million Americans do not have medical insurance, and studies indicate more than 60 percent of them either work for a small business or are dependent upon someone who does. Under the House bill, groups could form "association health plans," which backers say would enable small businesses to buy coverage more cheaply, and extend it to more workers and their families.