New Credit Union Law Needed

There are a lot of angry members of credit unions across the country, grousing with good reason about the Supreme Court’s decision to restore limits on who can join these nonprofit cooperatives. Going back to a strict reading of an old law, the court ruled 5 to 4 that credit union members must be individuals within a single company, community or occupation.

Congress needs to act to reverse the ruling, a major setback for credit unions although there will be no immediate effect on current members. The organizations have greatly expanded their memberships since 1982 when federal regulators relaxed the membership rules to allow a credit union to accept individuals from outside the group it was originally chartered to serve. This “multiple group” policy helped employees of small companies join credit unions chartered by larger ones and allowed credit unions at downsized companies to diversify to stay in business.

Federally chartered credit unions date back to the Depression, when banks were unwilling or unable to make small loans to workers. And consumers still want and need a choice beyond conventional banks, which hardly put out the welcome mat for small accounts.

The original Federal Credit Union Act of 1934 said members must be part of “groups having a common bond of occupation or association” such as employment in the same company or membership in the same church. After regulators relaxed the rules, banks mounted court challenges claiming that credit unions were building conglomerates and had unfair tax advantages as nonprofit corporations.

Anticipating the Supreme Court’s ruling, credit unions have been at work in Washington on legislation to change the law to ease its restrictions on membership. Attention is focusing on HR 1151, a bipartisan bill introduced by Rep. Paul E. Kanjorski (D-Pa.) and Rep. Steven C. LaTourette (R-Ohio) that has 136 co-sponsors. Committee hearings on credit union membership begin week after next.

What lawmakers will hear is that credit unions have attracted 71 million customers because of lower fees, fast emergency loans and better rates on loans and savings. Credit unions hardly pose a threat to banks, which, according to LaTourette, hold 93% of all savings and deposits and 94% of all loans. Consumers deserve alternatives; credit union membership restrictions should be amended.