Congress will now have to do what the Supreme Court failed to do Wednesday, which is to clear the way for expanded membership in credit unions.
The high court ruled in favor of bankers, throwing out a 16-year government policy that has let credit unions accept millions of new members from outside traditional membership pools.Instead of resolving the issue, however, the Supreme Court has just added to the confusion. The issue is complex, as evidenced by the narrow, 5-4 ruling to uphold a lower court decision.
The court has spoken, and Congress is about to speak. Speaker of the House Newt Gingrich announced Monday he is backing legislation that would allow expansion of credit union membership.
Strong arguments exist on both sides of the banks vs. credit unions battle. But people should not be prohibited from joining a credit union, which is what would happen to millions if Congress doesn't act to counter the Supreme Court's ruling.
Credit unions originally were established to make loans available to people who might be considered risks by banks, and to give people with small means access to loans. The Federal Credit Union Act of 1934 brought credit unions under federal regulation with the stipulation that membership should be limited to "groups having a common bond of occupation" or association. Credit unions are nonprofit organizations that have tax exemptions not afforded banks.
That original thrust changed in 1982 when the national Credit Union Administration expanded the interpretation of the law to let credit unions accept nontraditional members. This was in response to a downturn in the economy and was an attempt to keep credit unions viable during a time when many of the companies that had formed them were in financial trouble. For example, small businesses that lacked enough workers to form their own credit unions were allowed to join existing credit unions.
Banks claim the new interpretation precipitated a situation that has since gotten out of hand. In Utah, several credit unions do not restrict membership either by occupation or location. Several North Carolina community banks and the National Bankers Association sued the AT&T Family Federal Credit Union for overstepping its bounds. It has 165,000 members from 23 companies. A judge ruled in favor of the credit unions but a federal appeals court reversed that decision. The federal appeals court decision is what the Supreme Court narrowly upheld.
The Supreme Court was forced to make its ruling based in large part on congressional action in 1934. But banks and credit unions have both changed considerably since then, and new legislation needs to reflect those changes. That's what Congress is about to do and that's what it should do.