Expansion Policy Seen Paving Way for Taxation

By Arndorfer, James B. | American Banker, May 20, 1994 | Go to article overview

Expansion Policy Seen Paving Way for Taxation


Arndorfer, James B., American Banker


A new policy by the National Credit Union Administration that makes it easier for groups to expand could open the industry to taxation, say industry observers - and some credit unions.

By opening their doors to more people, credit unions increasingly will resemble banks and lose the uniqueness that exempts them from taxation and banklike regulation.

"It's one small step from the ultimate acknowledgment that credit unions aren't as distinct as they used to be," said economist R. Dan Brumbaugh Jr. "It will increase pressure from other financial institutions to eliminate their special treatment."

Letters of Protest

Officials of some small credit unions protested the changes in comment letters to the agency. They said opening up customer bases would hurt them competitively and open the industry to taxation.

"We are losing our uniqueness by opening up the field of membership," said Janet Harris, president of Riverside Health System Employees Credit Union, a $4 million-asset institution in Newport News, Va. "An open field of membership makes you a bank."

The agency's policy, approved last week, makes it easier to expand in several ways.

* Federal credit unions can take in low-income groups, regardless of their location.

* Well-operated credit unions can immediately serve small groups within a 25-mile radius, without getting prior approval.

* Credit unions facing "distress" because of a downsizing sponsor can convert to a community charter and add occupational-and associational groups, regardless of location.

Agency Chairman Norman E. D'Amours said the changes should help credit unions with downsizing sponsors bring in new customers, and bring credit union services to more low-income people. He said the policy is conservative and adheres to the Federal Credit Union Act of 1934.

He added that it is the cooperative structure of credit unions- not limited customer-bases - that justifies the industry's regulatory status.

Wilfred Broxterman, president of $1.5 billion-asset Hughes Aircraft Employees Federal Credit Union, Manhattan Beach, Calif., said he was "elated" with the new policy.

"That flexibility has to be there," he said.

He said Hughes has been seeking new customer groups as its sponsor pares back.

The banking industry has long opposed credit union expansion, arguing that it undermines the common bond. …

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