Newspaper article The Christian Science Monitor

Legal Fray: Credit Unions vs. Banks Bankers Sue Rival Body for Allowing Credit Union Composed of More Than One Group

Newspaper article The Christian Science Monitor

Legal Fray: Credit Unions vs. Banks Bankers Sue Rival Body for Allowing Credit Union Composed of More Than One Group

Article excerpt

WHAT do the Boston Symphony Orchestra, the United States Congress, and the Portuguese community in Cambridge, Mass., have in common?

Their members have access to credit unions - not-for-profit financial cooperatives that offer the same services as banks to members joined by a common bond: occupation, community, or association. Commercial banks don't like the competition from these tax-exempt counterparts, which have been growing faster than banks over the last decade.

Last week, the American Bankers Association (ABA) filed suit against the National Credit Union Association (NCUA) in Washington, D.C., district court, charging them with disregard for the "common bond" requirement of credit unions. At issue is the AT&T family credit union in North Carolina, which recently added members from employees at unrelated corporations: Duracell Battery Company and Coca-Cola Bottling Company.

"This case is just part of a larger pattern that has been fairly standard practice for NCUA over the past several years," says ABA spokesman Brian Muys. "We want to nip this common bond erosion in the bud." Across the country, 15,000 credit unions hold accounts for some 56 million Americans. Almost one-fourth of all credit unions consist of more than one group.

The lawsuit follows a period of strong growth for credit unions: their assets have risen at a faster rate than those of banks and savings-and-loan institutions, rising steadily at 12 percent a year for the last decade, (with the exception of 1989, when growth slowed to 7 percent), according to the Credit Union National Association (CUNA) in Madison, Wis.

Although credit unions do not pose a major threat to the commercial banking industry, holding only 6.4 percent of all US household savings, they have generally offered higher interest on savings and lower rates on loans than commercial banks.

"Our members, especially community banks, find it increasingly difficult to compete on this basis. We need to level the playing field," Mr. Muys says.

For several years, the ABA has tried unsuccessfully to get Congress to remove the tax exemption for credit unions. If the wealthiest credit unions (those with assets in excess of $10 million) were taxed, the federal government would reap $10 billion a year, Muys says. …

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