E400 CONGRESSIONAL RECORD — Extensions of Remarks March 17, 1998 from a former communist republic to a de- media must be allowed to report without favored by the ruling party. And the judicial mocracy would not happen overnight, it has fear of reprisal, and the judiciary must be system continues to be heavily influenced by been seven years since Croatia declared itself independent from any political influence. We the ruling party. The U.S. Congressmen cited an independent democratic nation, and little therefore urge you to increase the pressure the dismissal of Krunislav Olujic, the Presi- progress has been made in implementing on the Croatian government to come in line dent of the Supreme Court of Croatia and re- democratic reforms. This was recently re- with internationally recognized democratic ferred to the report of OSCE that Olujic’s affirmed by the State Department’s Country principles through all means at your dis- dismissal put in question the separation of Reports on Human Rights Practices for 1997. posal, including the disbursement of U.S. as- powers provided for the Constitution. In its report, the State Department makes sistance. SEVEN YEARS SINCE INDEPENDENCE, THE RE- the finding that in Croatia ‘‘the continuing Sincerely, PUBLIC OF CROATIA HAS MADE VERY LITTLE concentration of power within the one-party Tom Lantos, Tom Campbell, Tony P. PROGRESS TOWARD DEVELOPING DEMOCRACY central government, makes Croatia’s nomi- Hall, John Edward Porter, Martin nally democratic system in reality authori- Frost, Henry J. Hyde, Benjamin A. Gil- The American Congressmen wrote the tarian.’’ man, Luise V. Gutierrez, William O. Li- American President that while they had not Most print and broadcast media continue pinski, Edolphus Towns, Jesse L. Jack- expected that democracy would happen over- to be owned by the Croatian government re- son Jr., Joel Hefley. night in a former communist republic, they sulting in considerable restriction on free- found it regrettable the Republic of Croatia dom of the press. Journalists who criticize has made very little progress toward democ- the government face harassment and even VOICE OF AMERICA—AMERICAN CONGRESSMEN racy development in the last seven years. prosecution. the Association of Electronic REQUEST OF PRESIDENT CLINTON THAT HE They urged President Clinton to increase Media Journalists was established in October INCREASE THE PRESSURE ON THE REPUBLIC pressure on the Croatian government to 1997, and issued a manifesto (‘‘Forum 21’’) OF CROATIA TO BECOME A DEMOCRATIC carry out several demands: first, that Cro- with 21 points calling for professional and COUNTRY atia should hold fair and free elections based open electronic media. The State Depart- (By Bojan Klima) on election laws which do not favor the rul- ment found ‘‘13 of members who worked for A group of very influential American Con- ing party over the opposition; second, the state radio and television, came under imme- gressmen recently sent a letter to President government must return democratically- diate pressure and threats from the HDZ Bill Clinton and submitted a resolution to elected leaders of Parliamentary parties who [President Tudjman’s party] and the state- the U.S. Congress. The lawmakers wanted to were removed by administrative measures; run media to curtail these outside activi- increase the pressure on the Croatian gov- third, their must be multi-party control of ties.’’ The State Department further re- ernment to come in line with fundamental the election process; and fourth that journal- ported ‘‘The Government maintained an un- democratic principles. The Congressmen ists and judges must be allowed to function official campaign of harassment of the inde- urged the American President that he use all without fear of reprisal or political repres- pendent media throughout the year.’’ means at his disposal, including disburse- sion. Finally, these very influential Amer- In August 1997, the Croatian government ment of U.S. assistance. Among the many ican Congressmen requested of President brought charges against two prominent distinguished cosponsors and signatures are Clinton that he increase the pressure on the human rights activists, Ivan Cicak, long- influential Benjamin Gilman, Chairman of Croatian government to come in line with time President of the Croatian Helsinki the International Relations Committee, Con- internationally-recognized democratic prin- Committee, and politician Dobroslav Paraga, gressman Tom Lantos, a member of this ciples. The Congressmen requested that President of the Croatian Party of Rights Committee, and Congressman Henry Hyde. President Clinton use all means at his dis- 1861. The government alleged that both men What is the reason for this contact with posal, including U.S. economic assistance. had violated the Criminal Code by dissemi- President Clinton? nating false information with the intent of INTOLERANCE TOWARD FUNDAMENTAL f causing political instability in the country. POLITICAL FREEDOMS According to the State Department Report, The lawmakers expressed deep concern re- SUPPORT GROWS FOR CREDIT ‘‘. . . the same and similar statements had garding the Croatian government’s contin- UNIONS been made by these individuals—with no en- ued pattern of intolerance toward the basic suing public disorder—several years pre- freedoms of political expression. In these viously and that similar sentiments were ex- documents the Congressmen spoke of free- HON. PAUL E. KANJORSKI pressed by others.’’ The charges were dom of expression, freedom of media and sev- OF PENNSYLVANIA brought against these men within days of eral violations against civil rights of individ- their meeting with the investigators from uals. For example, they wrote that the gov- HON. STEVE C. LaTOURETTE The Hague War Crimes Tribunal in which ernment has control of most of the elec- OF OHIO they turned over documentation involving tronic and print media. Journalists who allegations against several high government criticize the government face harassment IN THE HOUSE OF REPRESENTATIVES officials. and even persecution. One example, the In addition, the Organization for Security Tuesday, March 17, 1998 American State Department found thirteen and Cooperation in Europe (OSCE) found the journalist, who worked for State radio and presidential election in June of 1997 to be Mr. KANJORSKI. Mr. Speaker, my col- television and who are members of Forum 21, ‘‘fundamentally flawed’’ and came to a simi- league, Mr. LATOURETTE and I wish to state received pressure and threats because they lar conclusion with regards to the par- that support for H.R. 1151, the Credit Union are members of this independent group. liamentary and local elections in April 1997. Membership Access Act, continues to grow. The President’s ruling party was given an MEDIA IS UNDER THE CONTROL OF THE GOVERN- Below are ten of the more than 100 editorials MENT; CASES CICAK, PARAGA AND OLUJIC overwhelming advantage in coverage by the from newspapers all across our nation which state-owned electronic media throughout the In the letter to the President the U.S. Con- gressmen quoted two cases, Ivan Cicak and support giving consumers the right to chose a election year. Furthermore, there is a dis- non-profit, cooperative, credit union for their fi- turbing trend over the past few years by the Dobroslav Paraga, who were charged in Au- Croatian government to use administrative gust for violating the Criminal Code by dis- nancial services. courts to replace heads of democratically seminating false information with the inten- Surveys have consistently shown that con- elected parties. The method is simple, the tion of causing political instability in the sumers strongly support the value and serv- party is registered as being headed by some- country. The Congressmen wrote in the let- ices they receive from their credit unions. That one who is favored by the ruling party. ter to President Clinton that charges were is why the Consumer Federation of America brought against these men within days of The judicial system continues to be heav- endorses H.R. 1151, the Credit Union Mem- ily influenced by the Croatian Administra- their meeting with investigators from the tion. In 1997, the Chief Justice of the Su- Hague War Crimes Tribunal to whom they bership Access Act. preme Court, Krunislaw Olujic, was dis- had turned over documentation involving al- A bipartisan group of more than 190 Mem- missed. Three members of the State Judici- legations against several high government bers from all regions of our country, and all ary Council were witnesses against him officials. U.S. lawmakers quoted some other parts of the political spectrum, are now co- while at the same time they also decided his examples of the non-democratic nature of sponsoring the Credit Union Membership Ac- fate. The OSCE reported that Olujic’s dismis- the political system in the Republic of Cro- cess Act. We should pass it quickly so that atia. Media presentation of the electorial sal ‘‘put in question the separation of powers credit unions can stop worrying about their fu- provided for by the Constitution.’’ campaign during the last presidential elec- Mr. President, we believe it is well past the tion was so non-objective that the Organiza- ture and return to serving their members. time for Croatia to hold fair and free elec- tion for Security and Cooperation in Europe [From the USA Today, Mar. 4, 1998] tions based on election laws which do not (OSCE) proclaimed the election ‘‘unfair.’’ favor the ruling party over the opposition. Furthermore, there is a disturbing trend by COURTS SLAP AT CREDIT UNIONS HURTS The government should return democrat- the Croatian government to use administra- CONSUMERS ically elected leaders of Parliamentary par- tive courts to replace heads of democrat- Consumers seeking bank services want low ties who were removed by administrative ically-elected parties. Instead of the demo- costs, higher returns and convenience. Last measures. There must be multi-party control cratically-elected heads, the party is reg- week, the Supreme Court struck a blow of the election process. An independent istered as being headed by someone who is against all three. March 17, 1998 CONGRESSIONAL RECORD — Extensions of Remarks E401 In deciding by a 5 4 vote that multiem- companies join credit unions chartered by us believe. According to the New Jersey ployer credit unions were, in effect, illegal, larger ones and allowed credit unions at Credit Union League, the assets of the aver- the court put a halt to credit unions’ rapid downsized companies to diversify to stay in age commercial bank are nearly 30 times growth, up 12 million members since 1990. business. that of a credit union. And if people are opt- Current multiemployer credit unions are Federally chartered credit unions date ing for credit unions instead of banks, it’s expected to be allowed to continue. But the back to the Depression, when banks were un- because of the lower fees and interest rates. ruling threatens to reduce competition for willing or unable to make small loans to A study by the Consumer Federation of banks by preventing millions of other Ameri- workers. And consumers still want and need America showed that credit union fees are cans from joining them. a choice beyond conventional banks, which about 40 percent lower than bank fees. Nonprofit credit unions are mostly hardly put out the welcome mat for small That’s a problem banks can address without employer sponsored and employee run. To accounts. squashing credit unions. Changing the law to be financially viable, each needs 500 mem- The original Federal Credit Union Act of allow credit unions to continue to expand bers—more than most small businesses have. 1934 said members must be part of ‘‘groups memberships within reason would be a vic- If they can’t jointly sponsor credit unions, having a common bond of occupation of asso- tory for consumers. their workers must do without. ciation’’ such as employment in the same This suits bankers fine. They claim credit company or membership in the same church. [From the Birmingham Post-Herald, May 7, unions offer higher interest on savings and After regulators relaxed the rules, banks 1997] lower rates on loans because they don’t pay mounted court challenges claiming that income taxes. That’s OK, they said, if mem- credit unions were building conglomerates GIVING CREDIT TO CREDIT UNIONS bership is strictly limited. But opening cred- and had unfair tax advantages as nonprofit Credit unions, which have been helping it unions to a wide array of people, as multi- corporations. people with their financial needs for more employer ones do, damages banks and robs Anticipating the Supreme Court’s ruling, than six decades, are themselves in need taxpayers, they argue. credit unions have been at work in Washing- now. They need to win a legal fight and, fail- There’s only one problem with that reason- ton on legislation to change the law to ease ing that, they need some political help from ing. History shows it to be false. its restrictions on membership. Attention is Congress. If they don’t get it, the credit Federal regulators urged small credit focusing on HR 1151, a bipartisan bill intro- unions themselves may no longer be avail- unions to merge 15 years ago to prevent duced by Rep. Paul E. Kanjorski (D-Pa.) and able for millions when they come knocking, them for going under, which could have hit Rep. Steven C. LaTourette (R-Ohio— that and American consumers, especially those of taxpayers the way savings and loan failures has 136 co-sponsors. Committee hearings on modest means, will have reason to grieve. did. And despite their rapid growth since, credit union membership begin week after Congress established credit unions as non- they’ve hardly hurt banks. next. profit cooperatives in 1934 chiefly for poorer Credit unions’ share of the nation’s finan- What lawmakers will hear is that credit people left out of the loop by banks. It re- cial assets is struck at 2%. Only 1% of their unions have attracted 71 million customers quired that members have a ‘‘common loans go to commercial ventures, where because of lower fees, fast emergency loans bond,’’ such as being employees of the same banks make their big money. And even in and better rates on loans and savings. Credit company. consumer lending, at which credit unions unions hardly pose a threat to banks, which, excel, they haven’t made big inroads. A fed- according to LaTourette, hold 93% of all sav- The formula worked fine until the late eral study last year found banks’ share of ings and deposits and 94% of all loans. Con- 1970s, when the disappearance of large manu- family debt climbed from 29% to 35% be- sumers deserve alternatives; credit union facturing plants and other economic changes tween 1988 and 1996 while the share owed membership restrictions should be amended. began robbing the credit unions of members. credit unions rose from a mere 3.3% to hard- A federal agency then said a credit union ly awesome 4.2%. [From The Record, Mar. 2, 1998] could include a multitude of groups in its membership in order to maintain a suffi- Meanwhile, bank profits are at record SUPPORT FOR CREDIT UNIONS highs, with fee income rocketing. ciently large operational base. In ruling in favor of the banking industry Those fees, on everything from counter The commercial banks yelped. What’s in its fight to stop credit unions from ex- service to ATMs, added $50 billion to banks’ more, they sued. They maintained that the panding, the U.S. Supreme Court probably bottom lines last year. Banks say they’re federal agency, The National Credit Union made the right legal decision last week. needed to cover the $250 annual cost of main- Administration, had misconstrued the law But Congress should write into law the taining an account. But they’re also high and a federal judge said the commercial practices invalidated by the court. Credit enough to force 13% of families out of banks banks were right. The Supreme Court has unions offer consumers choice and affordable and into the hands of costly check cashing agreed to hear the case either late this year services, and they encourage people to save outlets and pawnshops. or early next. who probably wouldn’t otherwise. That’s Even professionally managed credit unions If the high court concurs with lower court good for everyone. still have policies set by member elected rulings, some 10 million people will no longer By a 5–4 vote, the court ruled that the fed- volunteer boards. They strive to keep serv- be members of credit unions, and millions eral government went too far in 1982 when it ices affordable, so fees average 40% below more may never get the chance. allowed federally chartered credit unions to those of banks. At most, people eligible to recruit members who weren’t linked by occu- That would be a shame because credit enroll can open accounts with $25 or less. Try pation or location. The 1934 federal law that unions normally pay higher rates of return doing that at a bank. authorized credit unions had limited their on deposits and charge less interest on loans Congress recognizes the need. It is consid- membership to groups with a ‘‘common than banks. They tend to be easy and friend- ering legislation to preserve that access. bond.’’ ly to deal with, partly because the directors Doing so won’t hurt banks. It will cost tax- Justice Clarence Thomas wrote that the are likely to be the consumer’s fellow work- payers nothing. It only ensure consumers government’s interpretation of the law made ers. have the choices they deserve. it permissible ‘‘to grant a charter to a con- Banks say the competition from the credit glomerate credit union whose members unions is unfair because they don’t pay [From the Los Angeles Times Editorials, would include the employees of every com- taxes. It’s true that as nonprofit organiza- Feb. 27, 1998] pany in the United States.’’ That wasn’t the tions the credit unions don’t have profits to NEW CREDIT UNION LAW NEEDED intent of the law. pay taxes on. Their members do pay income There are a lot of angry members of credit But now that the court has ruled against taxes on any dividends. unions across the country, grousing with credit unions, the situation for 20 million If the credit unions lose in court, Congress good reason about the Supreme Court’s deci- customers who joined after the government could quickly come to the rescue with just a sion to restore limits on who can join these relaxed membership requirements is uncer- slight change in the 1934 law’s wording about nonprofit cooperatives. Going back to a tain. ‘‘common bonds.’’ There is some bipartisan strict reading of an old law, the court ruled Federal lawmakers can end this limbo with support for the amendment, though not ex- 5 to 4 that credit union members must be in- legislation allowing credit unions to con- actly a groundswell yet. You would think, at dividuals within a single company, commu- tinue to operate under the more flexible first blush, that there would be more inter- nity or occupation. rules established by Washington. est. After all, 70 million Americans belong to Congress needs to act to reverse the ruling, Such a move has bipartisan support, but credit unions, and that’s a lot of voters. a major setback for credit unions although don’t expect the powerful banking lobbyists It’s possible, of course, that another num- there will be no immediate effect on current to lie down and allow it to become law. ber speaks more loudly in the legislative ear: members. The organizations have greatly ex- Banks complain the credit unions are com- 4.4 trillion, which is the accumulation of dol- panded their memberships since 1982 when petitors who are allowed to play by a dif- lars the banks have in assets, and more than federal regulators relaxed the membership ferent set of rules. Credit unions don’t have 12 times the assets of credit unions. The rules to allow a credit union to accept indi- to pay federal taxes or abide by fair-lending banks would not seem to be at much of a dis- viduals from outside the group it was origi- laws. advantage economically, after all, although nally chartered to serve. This ‘‘multiple But credit unions aren’t as much of a the credit unions may be at a disadvantage group’’ policy helped employees of small threat as the banking industry would have politically. E402 CONGRESSIONAL RECORD — Extensions of Remarks March 17, 1998 [From the Wilmington Morning Star, Feb. Healthy credit unions are vital for consum- Bankers sued the credit unions to stop that 28, 1998] ers in an era when America’s over-consoli- practice, saying the 1934 law was being GIVE SOME CREDIT WHERE IT’S NEEDED dating banks are gouging their customers stretched too far. The Supreme Court agreed About 650,000 Tar Heels are members of with ever-higher fees—and when job growth that membership should be restricted under credit unions. A Wednesday ruling by the is fastest at businesses that employ fewer existing law. U.S. Supreme Court threatens to take away than 50 workers each. Such businesses obvi- Congress can ensure the continued health some of their choices and force them to pay ously lack the critical mass to sustain a of credit unions by updating the law to fit more for financial services. credit union all by themselves. Yet courts today’s economy, with its profusion of small The fight now shifts to Congress, where are concerned with what the law says, not businesses. Bankers oppose the bill, saying support is building to protect credit unions with how an interpretation might affect the credit unions have an unfair advantage be- from being overwhelmed by big banks. marketplace. cause of exemptions. But credit unions don’t Credit unions got started during the De- So it’s therefore hard to fault this ruling pay federal income taxes because they don’t pression, when some banks refused to lend on legal grounds. Indeed, the 5–4 majority generate income; they are simply groups of money to many Americans, particularly joining in Justice Clarence Thomas’s major- people pooling funds to help one another. those of modest means. ity opinion cut across the court’s usual ideo- By allowing credit unions to continue to As Justice Sandra Day O’Connor put it in logical fault-line to include Justice Ruth grow, Congress can help the ‘‘little guy’’ a dissent to the court’s ruling in this case, Bader Ginsburg, a Clinton appointee. And combat rising bank fees, high loan rates and ‘‘Credit unions were believed to enable the the dissenters merely argued that the banks occasionally rude service. general public which had largely been ig- had lacked the standing to sue. nored by banks, to obtain credit at reason- Although the court decided who won this [From the Boston Globe, Mar. 2, 1998] able rates.’’ battle, Congress and the states will decide WHERE CREDIT IS DUE who wins the war. On Capitol Hill, House Federal regulators in 1982 allowed many Congress owes American consumers swift Speaker Newt Gingrich is pushing a bill to credit unions to expand their memberships action to reverse the effect of a Supreme let credit unions do what the court’s ruling beyond the original employees or associa- Court decision potentially restricting access says the anachronistic 1934 law won’t let tions that they were established to serve. to credit unions. Credit unions, beyond pro- them do. It is that expansion that bankers chal- viding direct services to ordinary savers and Meanwhile, in the state capitals where fed- lenged in this lawsuit which arose in North borrowers, perform a valuable function for erally chartered credit unions have been re- Carolina. everyone with competitive deposit and loan The banks claim credit unions have an un- chartering with state regulators, the banks rates that would be diminished were the de- fair advantage, because they are exempt and credit unions will be slugging it out cision’s effects to stand for long. from federal taxes and have grown to offer a again on membership rules and, in some The court’s 5–4 decision was based on a wide range of financial services that make states, on taxation issues. strict reading of federal enabling statutes many larger credit unions virtually indistin- How these battles turn out will be an inter- that govern eligibility for joining credit guishable from banks. esting test of whether a broad interest favor- unions. The law stipulates that credit unions Credit unions reply that they must be al- able to lots of voters—the credit unions—can may serve groups of people with common lowed to grow as they compete with bigger defeat a powerful banking lobby that pro- bonds of association or occupation, but regu- banks for customers. And credit unions still vides lots of politicians with wads of cam- lators have permitted very loose interpreta- offer incentives to customers with smaller paign cash. tion of what constitutes that commonality. amounts—the types of customers many of This loose interpretation has, in turn, per- the growing mega-banks shun by charging [From the Atlanta Constitution] mitted growth of credit unions that are es- them higher fees and interest rates. KEEP CREDIT UNIONS STRONG After winning in the Supreme Court, the sentially indistinguishable from ordinary House Speaker Newt Gingrich (R–Ga.) has banks in their depositor and borrower cus- banking industry said it only wants to pre- decided to join some 160 cosponsors of a bill vent future expansion of credit unions and tomer profiles. to strengthen credit unions, adding impor- Despite expansion, credit unions are won’t try to force current members out. But tant momentum to congressional efforts to scarcely a dominant force in banking, having since many credit unions have a large turn- overturn a Supreme Court ruling favoring only 6 percent of assets even though the over in customers, the need a steady flow of banks over financial cooperatives. number of individual credit unions—11,591— new customers to survive. The bill embraced by Gingrich would allow slightly exceeds the number of commercial The decision was barely filed before lobby- federally chartered credit unions to continue ing began for a bill already prepared in Con- and savings banks. to include diverse groups in their member- The history of the credit union movement, gress. ships. Last week, the Supreme Court ruled 5- It would change the 1934 law that created in which Massachusetts has played a leading 4 that only a single group with a ‘‘common role, dates to a time when conventional credit unions, allowing them to include bond’’ can form a credit union. In other members from several businesses or associa- banking practices were far less accommodat- words, a credit union would no longer be al- ing to potential customers with limited tions, instead of just one. lowed to welcome employees from several There seems no other way to preserve fi- means. Credit was often difficult to get, and different companies. even depositors might be dismissed as trivial nancial institutions that have helped so That ruling could represent a significant nuisances. In that world, the development of many families of modest means. financial setback for the 62 million Ameri- credit unions played an important role in cans who depend on the nonprofit coopera- providing financial services to groups that [From the Miami Herald, Feb. 28, 1998] tives for low-cost loans and other banking might otherwise have been left out. BANKING ON LAWMAKERS services. The need for credit unions has More recently, credit unions have taken on In the latest battle between banks and grown as banks continue to merge and en- the trappings of conventional banks and credit unions, the banks won and consumers large themselves, leaving many consumers have competed successfully with savings lost. A divided U.S. Supreme Court ruled this facing higher fees and less personalized serv- banks and savings and loan associations. Too week that a federal agency erred in 1982 ice. successfully, some bankers say, blaming the when its broad interpretation of a 1934 law Because credit unions do not generate prof- tax advantages some credit unions enjoy—an let credit unions substantially expand their its for shareholders, they can pass along issue that also needs addressing. membership. earnings to members in the form of better For now Congress can avoid confusion and Granted, the law’s language seems vague rates and services. Although credit unions unnecessary dislocation by authorizing what enough to lend itself to varied interpreta- make up less than 6 percent of the consumer has become a financial reality: Credit unions tions. It says that federally chartered credit financial-services market, they put enough are significant and valued players in a vital unions’ membership shall be limited to pressure on banks to help hold down fees for field. groups having a common bond of occupation everyone. of association, or to groups within a well-de- When credit unions were created by federal [From the Startribune, Mar. 9, 1998] fined neighborhood, community, or rural dis- law in 1934, members generally shared a trict.’’ ‘‘common bond,’’ such as employment in a CREDIT UNIONS—CONSUMERS DESERVE Construed liberally, a ‘‘common bond large factory. But in recent years, sprawling GREATER ACCESS of . . . association’’ could even be inter- factories have been closing, leaving more The American Bankers Association won a preted to include persons freely associating people employed by small companies. In round against the little guys last month in order to open a credit union. For years, Georgia, for example, 62 percent of the peo- when the U.S. Supreme Court ruled that fed- though, most credit unions were restricted ple employed in the private sector work for eral regulators have made it too easy for the to employees of a single firm or to members companies with fewer than 500 employees. nation’s credit unions to expand and com- of a single labor union. But a credit union needs at least 500 mem- pete with the Citibanks of the world. You In 1982, however, the national Credit Union bers to generate sufficient business to cover can’t fault the justices; they read existing Administration sensibly ruled that credit costs. The only way to survive is to have one law correctly. unions could accept members from multiple union serve the employees of several small But this week, Congress will take up legis- employers. The ruling helped credit unions companies, a move that the National Credit lation to rewrite the law and restore a broad- expand. Union Administration has allowed since 1982. er customer base for credit unions. That March 17, 1998 CONGRESSIONAL RECORD — Extensions of Remarks E403 would serve the nation’s consumers and in- [From the Chicago Tribune, Apr. 28, 1997] financed their cottages through their own vigorate competition in the nation’s finan- CONSUMERS WILL BE THE BIG LOSERS IN S&L. So when the opportunity arose to pull cial markets. BANKS’ ATTACK OF CREDIT UNIONS the plug on the little people (after Uncle Bai- At issue is a concept called ‘‘field of mem- (By John McCarron) ley misplaced a bank payment) the greedy bership.’’ When Congress created credit Mr. Potter moved in for the foreclosure kill. unions in 1934, it gave consumers the power God bless the Navy Federal Credit Union. to band together and form low-cost alter- If it wasn’t for the credit union, I couldn’t Capra’s populist allegory was heavy-hand- natives to banks. But Congress said such have bought that used Toyota Corona back ed, to be sure, the product of Depression era groups must have a common bond, such as in 1971. And if it wasn’t for that Toyota, angst over the lot of working people. The working for the same employer. In 1982 the things might not have turned out so well. movie’s plot seems outdated now that so Back then, my new bride needed a car so federal agency that regulates credit unions, many of us are middle-class with stock port- she could move out of her parents’ house in the National Credit Union Administration, folios of our own. New Jersey and take a ‘‘dream’’ job as a vis- greatly expanded that concept, allowing a But guess what? The spirit of Mr. Potter is iting nurse near Newport, R.I., where my oil credit union to combine multiple employers alive and well. It throbs within the silk suits tanker was based. We were a year out of col- or communities within a field of member- of American Bankers Association, which is lege with no savings and a credit sheet full of ship. Today, about half of federally chartered on a crusade to stop the growth of my NFCU credit unions have these conglomerate mem- outstanding student loans. That didn’t bother the Navy Federal Credit and the 12,000 other member-owned credit berships. Some, like the IBM Employees Union. It was used to lending money to unions in these United States. Credit Union in Rochester, Minn., have tens freshly-minted ensigns with strange-sound- Turns out more and more consumers are of thousands of members. It was this policy ing addresses like: ‘‘USS Mississinewa (AO– discovering it pays to save and borrow at that the Supreme Court struck down last 144), FPO, New York.’’ And the office work- their own co-ops rather than at banks that month. But there was good reason for the NCUA to ers knew exactly where to find the union’s need to churn out profits for stockholders loosen the reins on credit unions. The finan- members. They also knew, what with so and big salaries for bank officers. Even cial squeeze that swept across America in many shipmates belonging to the same cred- though they hold 93 percent of all the na- the early 1980s restructured the U.S. econ- it union, from the captain to the cook, that tion’s savings, bankers say they are ‘‘con- omy, wiping out many of the venerable mid- for a junior officer to default on a loan would cerned’’ about the growth of credit union sized manufacturers that had sustained cred- be, well, not a good career move. More like membership. it unions. Meanwhile, a new industry of a keel-hauling offense. So the ABA has been suing the federal So NFCU okayed that thousand bucks by micro-service firms sprang up, with the re- agency that regulates credit unions, claim- phone, right there at the car dealership, and sult that the average size of American em- ing the unions ought to confine their mem- my new bride and I drove off to our new ca- ployers has shrunk and shrunk. Today, fewer bership to savers with a single ‘‘common reers, wedded bliss, kids, a mortgage and all than half of Americans work at companies bond’’ (like employment in the Navy.) In an the rest. big enough to sustain credit unions on their era of rapid consolidation among all types of Truth be told, we haven’t borrowed much own. They simply have no access to this at- lenders, they especially want to stop larger from our credit union since those early tractive financial alternative. credit unions from merging with smaller years. Except for our mortgage we’ve been If credit unions posed a genuine threat to ones whose members don’t have the same fortunate enough to avoid buying-on-time or banks, it might be right to go back to an bond. older set of rules. But they don’t. Although paying those unconscionable 18 percent bank they have some 70 million members, they credit card rates. Still we’re faithful ‘‘mem- The bankers argue that overly permissive represent scarcely 2 percent of the financial bers-owners’’ of the NFCU. I keep more than federal rules make it possible for the general services market—just enough to serve as a the minimum balance in our ‘‘share savings public to join credit unions. This is an out- good competitive check on banks in an era of account’’ for a couple of reasons. You never rage, they say, because unlike banks, credit rapid financial consolidation. know when you’ll need a competitively- unions don’t pay income taxes and therefore Bankers have a second gripe, which might priced consumer loan; and besides, I believe have an unfair competitive advantage. (An get attention from Congress. Credit unions in what credit unions stand for. $800 million ‘‘government subsidy,’’ accord- are exempt from the federal corporate in- And what they stand for, to my way of ing to ABA publicity materials.) come tax, and thus have a modest cost ad- thinking, is that people of modest means What the bankers don’t say is that credit vantage over banks. There is a rationale for have a right to form their own not-for-profit unions disburse virtually all their profits to this special tax status. Credit unions are cooperatives rather than do business with members in the form of dividends, which are, member-owned cooperatives that earn no for-profit companies owned by distant pow- in turn, taxed as personal income. profits and have no stockholders. But mod- ers-that-be. That’s also why I choose to in- ern credit unions resemble banks in other sure my house and car through a mutual in- Maybe that last point was lost on the fed- important respects; they’re professionally surance company and why I got my first eral appellate judges who last July over- run and highly computerized. It’s hard to mortgage from a savings and loan associa- turned lower-court rulings and sided with argue that they need what amounts to a sub- tion. And it’s why I was saddened when my the banks. If the Supreme Court concurs, sidy from taxpayers, especially at a time S&L was gobbled up—as so many have been— some 10 million credit unionists will see when Congress is trying to squeeze loopholes by a mega-bank that’s listed on the New their memberships voided. out of the tax code. York Stock Exchange and pays its CEO more Unless, of course, Congress amends the 1934 Credit unions aren’t for everybody. Many than $3.6 million a year in salary and bo- Federal Credit Union Act so as to liberalize consumers want the heft and convenience of nuses (not including stock options.) the definition of ‘‘common bond.’’ a full-service bank that offers a broad line of Then again, most people don’t care wheth- Which is precisely what Congress should loans, multiple branches and even invest- er their lender or insurer is mutual, co-op or do, though I’m not going to hold my breath. ment advice. But credit unions, with volun- stock. Likewise, most people probably think Money talks in Washington, and the $5 tril- teer management and no-frills infrastruc- Frank Capra’s ‘‘It’s a Wonderful Life,’’ was a lion banking industry talks louder than a ture, typically offer basic checking and lend- movie about Christmas, not the tension be- credit union sector one-sixteenth that size. ing services at more competitive fees and in- tween mutuals (George Bailey’s S&L) and terest rates. Choice is good in competitive for-profits (Mr. Potter’s commercial bank.) It’s a shame, because I don’t think Mr. markets, and this is a choice that should be Mr. Potter, you may recall, didn’t have Potter would have made that loan on our available to more Americans. much use for the dirty-fingernail types who used Toyota.