There were high-fives all around at the Utah League of Credit Unions Tuesday when word came that the U.S. Senate had passed HR1151, a bill that increases consumer access to credit unions.
"Wow, we're so excited that the Senate would so overwhelmingly pass that bill and say `Yes' to consumers," said Tracie Kenyon Karls, vice president of dues supported services for the league. League president Scott Earl was in Washington, D.C., Tuesday for the Senate vote.The Senate voted 92-6 in favor of the legislation, which in April passed the House of Representatives by an equally impressive margin of 411-8.
The bill, if signed by the president, would override a Supreme Court ruling last February that said credit unions could not include more than one group in their membership, the so-called "common bond" test.
It was a stunning defeat for the nation's banking industry, which has strongly protested credit unions' exemption from federal taxes. That exemption is retained by the legislation.
Does Tuesday's victory put an end to what the credit unions have seen as an assault by the banking industry?
"That remains to be seen," said Karls. "Here in Utah we still have the case in state court (in which the Utah Bankers Association is suing the credit unions over the issue of whether they may admit members from outside the county in which the credit union is based), and that's still an unknown."
Howard Headlee, president of the Utah Bankers Association, said the battle does not end with Tuesday's vote.
"This has set the stage for a head-on collision between the nation's banks and thrifts and the large, bank-like credit unions who are exploiting the credit union law in an effort to compete head-to-head with tax-paying banks," said Headlee.
"This is not going to go away as long as a few so-called credit unions insist on acting like banks but don't want to play by the same rules. What Congress, in their short-sightedness, has done is endorse the behavior of a few big credit unions. This will have little or no impact on the traditional ma-and-pa credit unions doing what they've always done."
William T. McConnell, president of the American Bankers Association, termed the bill's passage "a real loss for taxpayers." He said credit unions "now have a license for unbridled expansion of their billion-dollar annual tax subsidy."
McConnell said the Senate adopted a "corporate welfare bill" that allows credit unions to extend their tax subsidy to wealthy individuals and big businesses.
He agreed with Headlee that the fight is not over and that the banks will continue to push for taxation of credit unions. "Any time Congress seeks to find additional revenues for a tax bill, we will push for the taxation of credit unions," said McConnell.
The bill also includes some restrictions on credit union loans to business, but they are not as tight as the bankers wanted. An amendment to the bill was defeated on Monday that would have lowered the cap on commercial lending by a credit union to 7 percent of the credit union's assets. The bill passed Tuesday sets that limit at 12.25 percent.
The Senate also rejected an amendment - favored by the Clinton administration and endorsed by the House - that would have required credit unions to adhere to fair lending practices, as required by banks.
Sen. Phil Gramm, R-Texas, said credit unions are voluntary, not-for-profit organizations and should not be subject to federal mandates on who their customers should be. The original bill, said Gramm, would have forced credit unions to use their resources for something other than "promoting the well-being of their members."
Another amendment, that would have exempted small community banks from the 1977 law requiring regulators to consider a bank's lending record to minorities and low-income applicants when ruling on expansion proposals, also was defeated.
The amendment was offered by Sen. Richard Shelby, R-Ala., who argued that community banks have to compete with a higher cost of funds, a higher regulatory burden and a big tax bite.
"While we increase the competitive advantage of . . . (credit unions) in this bill, we do nothing to help small banks compete on a more level playing field," said Shelby.
Credit unions compete directly with community banks and often are able to provide loans with lower interest rates than the small banks. The banks say this is because of their tax-exempt status and is patently unfair.