Supreme battle brewing.Are credit unions thieves in the night, slyly stealing away billions of dollars of business from banks under the dark mantle of tax-free operation?
Or, are banks the greedy robber barons Robber Barons
A disparaging term dating back to the 12th century which refers to:
1) Unscrupulous feudal lords who amassed personal fortunes by using illegal and immoral business practices, such as illegally charging tolls to merchant ships that passed , unwilling to share even a sliver sliver
in wool processing a continuous band of carded and combed wool which has not yet been twisted into yarn. of the financial business pie to credit unions that are merely trying to provide service to customers heretofore eschewed by the bankers?
The answer may have to come from the U.S. Supreme Court, which last week left a case involving credit union membership in its "pending" file. Given that about 350,000 Arkansans have about $850 million in credit unions, the state's financial community is keeping a close eye on Washington.
First, a history lesson on credit unions.
The Federal Credit Union Act In 1934, the U.S. Congress passed the Federal Credit Union Act, which President Roosevelt signed into law. The purpose of the federal law was to make credit available and promote thrift through a national system of nonprofit, cooperative credit unions. of 1934 established credit unions as not-for-profit financial cooperatives, much like farmers' cooperatives and rural electrical cooperatives. Membership was to be "limited to groups having a common bond of occupation ... or to groups within a well-defined neighborhood, community or rural district."
The first credit unions were community-based, but over the years most credit unions were formed by large businesses and government agencies for the use of their employees.
In 1982, the National Credit Union Administration The National Credit Union Administration (NCUA) is responsible for chartering, insuring, supervising, and examining federal credit unions (FCUs) and for administering the National Credit Union Share Insurance Fund. , which acts as credit unions' insurer and regulator (roughly equivalent to the relationship between banks and the Federal Deposit Insurance Corp.), ruled that credit unions could accept members from more than one employer or group. As a result, credit unions for employees of large companies began accepting members from smaller firms, and groups of small companies banded together to form credit unions.
"It was a logical progression," says Craig B. Savell, president and chief executive officer of the Arkansas Credit Union League A credit union league (League) is a United States state-level trade association for credit unions, which are non-profit financial cooperatives. Credit union leagues hold a primary interest in the Credit Union National Association (CUNA). , "because most businesses are not large enough to form their own credit unions, and people in any size business should have the right to join a credit union if they want."
But some bankers question the timing of the move. There was a recession in '82, and some smaller credit unions had gone bankrupt and others were threatened. The liberal interpretation of the Federal Credit Union Act was seen as a way for weaker institutions to broaden their ranks and merge with each other.
In 1990 the American Bankers Association The American Bankers Association (ABA) is comprised of banks and other financial institutions. It seeks to promote the strength and profitability of the banking industry by Lobbying federal and state governments, building industry consensus on key issues, and providing products and and five banks in North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures
Area, 52,586 sq mi (136,198 sq km). Pop. sued the the National Credit Union Association, claiming that the AT&T federal credit union had illegally accepted members from outside the ranks of its employees. The credit unions won the original court case, but the District of Columbia Court of Appeals
1. Having a plane surface; flat.
2. Organized as a table or list.
3. Calculated by means of a table.
resembling a table. DATA OMITTED] last July 30.
An injunction entered Oct. 25, 1996, prohibits federal credit unions from admitting any new groups unrelated to their "core" group." But after an appeal by the credit unions Dec. 24, a partial suspension of the injunction allows federal credit unions to sign up new members from existing groups.
The case has been appealed to the U.S. Supreme Court, which on Tuesday put off a decision on whether to hear the case.
Savell thinks there's a good chance the Supreme Court eventually will hear the case "because it's a situation in which a federal court and a federal agency [the NCUA NCUA National Credit Union Administration (US government)
NCUA Nbcs Control Unit Atm ] disagree. But even if the justices agree to hear the case, it won't come up for arguments until the August '97-April '98 session."
'Common Bond' Lost
Dan Bailey, executive director of the Arkansas Bankers Association, says the banking industry has no fundamental problem with credit unions.
"The banking industry does, however, have a problem with a handful of credit unions that have abandoned the 'common bond' concept and have, in effect, become banks," he says. "Our view is that credit unions that act like banks ought to be treated like banks. That is, they ought to have the same rules, the same regulations and they ought to be taxed the same."
According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the American Bankers Association, the credit unions' tax-exempt status costs the U.S. government about $1 billion a year in lost revenue.
Locally, Bailey says, there are "a couple of credit unions that the banking industry finds very troublesome. The 66 Federal Credit Union is a good example."
Based in Bartlesville, Okla., 66 Federal was formed for employees of Phillips Petroleum Co. It later expanded its membership to faculty members at the University of Kansas The University of Kansas (often referred to as KU or just Kansas) is an institution of higher learning in Lawrence, Kansas. The main campus resides atop Mount Oread. and more recently to 12,000-13,000 poultry workers at Tyson Foods Tyson Foods, Inc. (NYSE: TSN) is an American multinational corporation based in Springdale, Arkansas, that operates in the food industry. The company is the world's largest processor and marketer of chicken, beef, and pork, and annually exports the largest percentage of beef Inc., many of them in Arkansas.
"Where's the 'common bond' there?" Bailey asks. "To me, that institution is a bank and ought to be taxed like one."
Mark Humphries, executive vice president of 66 Federal, notes that the Tyson employees are served by Tyson Credit Union, an affiliate of 66 Federal. The Tyson management, he says, decided it would be more cost-effective to affiliate with an established credit union rather than form one solely for company employees.
"The Tyson Credit Union is part of our organization," Humphries says. "Its members are just as much owner/shareholders as the 66 Federal members and the members from the University of Kansas. Credit unions have the authority to style themselves to best serve a variety of markets, and that's what That's What is one of the more idiosyncratic releases by solo steel-string guitar artist Leo Kottke. It is distinctive in it's jazzy nature and "talking" songs ("Buzzby" and "Husbandry"). we've done."
Savell says the American Bankers Association perceives credit unions as more of a threat than they really are.
"Banks are growing at a huge rate," he says. "Asset-wise, credit unions aren't that big a piece of the pie. We're not taking away their assets. If banks are losing out to anyone, it's to the mutual funds and the stock market."
According to the Credit Union National Association, in 1995 Arkansas banks held 87.3 percent of financial market share in terms of assets. Savings and loan associations savings and loan association, type of financial institution that was originally created to accept savings from private investors and to provide home mortgage services for the public.
The first U.S. savings and loan association was founded in 1831. held 10.2 percent and credit unions 2.5 percent. The state's total bank assets of $29.2 billion dwarfed credit unions' total assets of $850 million.
Arkansas Financial Institution Growth 1985 1990 1995 CREDIT UNIONS Assets $320 $560 $850 Asset Growth(%)(*) 75.0 51.7 Asset Growth ('91-'95) $290 BANKS Assets $17,198 $21,501 $29,159 Asset Growth(%)(*) 25.0 35.6 Asset Growth ('91-'95) $7,658 SAVINGS AND LOANS Assets $8,303 $2,581 $33,407 Asset Growth(%)(*) -68.9 32.0 Asset Growth ('91-'95) $826 TOTAL DEPOSITS Assets $25,821 $24,642 $33,416 Asset Growth(%)(*) -4.6 5.6 Asset Growth ('91-'95) $8,774 * For previous five-year period. Figures in millions. Sources: Credit Union National Association and Federal Deposit Insurance Corp.
The bankers association argues, though, that credit unions have grown exponentially ex·po·nen·tial
1. Of or relating to an exponent.
a. Containing, involving, or expressed as an exponent.
b. , especially after the 1982 NCUA ruling. Nationally, total assets in credit unions ballooned from slightly more than $100 billion in 1985 to about $311 billion now.
Savell attributes the growth of credit unions to customer service: charging lower interest rates on loans and paying higher rates on savings accounts Savings Account
A deposit account intended for funds that are expected to stay in for the short term. A savings account offers lower returns than the market rates.
Bailey says at least part of the reason for credit unions' success - and the reason for their more favorable rates - is their unfair advantage: no taxes.
"It's an unlevel playing field where banks are paying a 36 percent tax on profits and credit unions aren't being taxed at all," Bailey says.
Savell replies, "That's their sound bite sound bite
A brief statement, as by a politician, taken from an audiotape or videotape and broadcast especially during a news report: "The box has been spitting forth maddening nine-second sound bites" : 'We want a level playing field See net neutrality. .' Well, here's our sound bite: 'We're not even in the same game.' What I mean is, they play hardball hard·ball
2. Informal The use of any means, however ruthless, to attain an objective.
US & Canad
1. for profit and we play soft-ball in a not-for-profit game."
Credit unions argue that because they're not-for-profits, they don't have "profits."
Yeah, right, Bailey counters.
"Credit unions may not call their revenue in excess of expenses 'profits,' but that's what they are," he says. "They have shareholders and they issue dividends. Last year credit unions had a 'profit' of $3.5 billion."