Mr. Chairman,
I want to first thank you for rescheduling me and including me in this morning's hearing. I was
unable to testify last Thursday because the House Committee on Banking and Financial Services
was holding a markup of H.R. 1151, the Credit Union Membership Access Act, in response to
the Supreme Court's February 25 ruling in the NCUA v. First National Bank & Trust case. I
greatly appreciate the opportunity to testify before the Senate Banking Committee, and you and
your staff have made my first venture to "the other side of the Hill" most enjoyable.
I must admit that when my colleague, Congressman Kanjorski, and I introduced H.R. 1151 a
year ago, I hoped like many of my colleagues on this Committee and in Congress that the
Supreme Court would rule differently and the legislation would be moot. Realizing, however,
that an adverse ruling from the Court could be disastrous for the nation's 3,500 occupation-based
credit unions and their 70 million members, I felt it was imperative to have a legislative remedy
prepared should the Court rule as it did.
Mr. Chairman, as you know, H.R. 1151 was passed by the House yesterday by a vote of 411 to 8.
This measure, while slightly modified from the version Mr. Kanjorski and I introduced, is hardly
a radical fix to the credit union common bond issue. Instead, it basically codifies the manner in
which the National Credit Union Administration (NCUA) has permitted new employee groups to
join an existing credit union for about 16 years. The House-passed version does contain a
number of new restrictions on credit unions. Most notably, the measure places a 3,000-member
cap on new groups joining an existing credit union and imposes geographic restrictions on those
new groups. The measure also requires the NCUA to define who exactly qualifies for credit
union membership under the "immediate family" or "household member" criteria. Finally, the
new H.R. 1151 will require credit unions to comply with some CRA-like provisions to ensure
credit unions are serving all of their members equally.
Why is it important for credit unions to be allowed to expand as they have for the last 16 years?
The need was certainly illustrated in a letter I recently received from a constituent in my district,
Betty Yelochen (yah-low-tian) of Mayfield Village, Ohio. Ms. Yelochen has been a member of
Clark General Federal Credit Union for over 40 years, and has worked as its manager the last 19
years.
In her letter she wrote:
"Our original sponsor company, Clark Controller Co., went out of business a number of years
ago. In order to survive, the Credit Union took in a number of mergers. When the policy was
adopted in 1982 permitting multiple groups, we took in a number of smaller companies that
couldn't support a credit union on their own. Our Credit Union is small, only $1.7 million in
assets and approximately 1,300 members. All of my financing has been handled by our Credit
Union. Clark General Federal Credit Union offers personalized service with minimal fees."
This particular credit union was formed 49 years ago, and today has its office on Euclid Avenue
in Wickliffe, Ohio, a suburb of Cleveland. When Clark's sponsor went out of business in 1981,
the credit union had between 1,200 and 1,400 members. Today, its membership stands at 1,300 -- so you can see it's grown by leaps and bounds and is giving local banks a run for their money.
It's as simple as this: as members have died, they have been replaced by members from small
companies, some of which join in increments of as few as four employees at a time.
Additionally, in the 16 years following the relaxation of membership rules, Clark General
Federal Credit has taken in a few smaller credit unions -- including the Curtis Employees Credit
Union in Eastlake, Ohio, which was on the brink of collapse after a protracted labor strike by
Curtis employees. About 230 former Curtis credit union members now call Clark General home,
and are pleased to be there.
Most members of Clark General Federal Credit Union are elderly and have been members 40
years or more. This means that fewer and fewer older members need car loans; they pay cash.
Also, with the number of death claims each year, this credit union and others like it must be
allowed to grow or it will wither and die. It does not wish to join with a larger credit union,
although it has had a number of offers over the years. The members of Clark Federal Credit
Union rely on it, and they appreciate the personal service provided by manager Betty Yelochen --
the credit union's sole full-time employee, and her two part-time assistants.
"It's kinda like home," "it's run on a shoestring," and "we're so reserved it's unreal" are phrases
Betty Yelochen uses to describe her credit union.
Still, even this small credit union wants to remain viable, and to do so it has to be able to add
members and add new services. It is important to note this credit union has no aspirations to
offer home mortgages or even second mortgages. Heck, it'd be thrilled to finally offer draft
checking and ATM services. Yes, for all its supposed similarities to a bank, this particular credit
union exists largely because of the low-cost loans it can provide its members, and its low
delinquency rate. It's doing the same things well today it did well nearly 50 years ago.
Chances are Clark General Federal Union won't survive under current grandfathering plans, and
what happens to small companies in the future if they end up shutting their doors, as Clark
Controller did?
Does the Congress intend to effectively shut off credit union access to America's millions and
millions of small businesses? Are we going to deny this hard-working, prosperous and inventive
workforce the ability to choose where they can conduct their financial dealings? By forbidding
unrelated employee groups, each with its own common bond, from pooling together, consider
exactly who we might be affecting:
Our country's 22 million small businesses employ more than 50 percent of the private workforce,
generate more than half of the nation's Gross Domestic Product, and are the principal source of
new jobs.
When President Clinton announced plans to reinvent the federal government, he indicated the
goal was "customer service equal to the best in business." Mr. Chairman, many credit union
members believe this is precisely what they get today from their credit union, the best customer
service in the business.
We are all familiar with the history of credit unions. Created as an Act of Congress in 1934 with
the passage of the Federal Credit Union Act, credit unions were established to fill a niche in the
financial marketplace that had theretofore been overlooked. Prior to the passage of that Act,
there were certain financial services that banks were not providing, and had no interest in
providing - namely small consumer loans. Credit Unions, which were organized as not-for-profit
cooperatives around groups of employees or parishioners, filled the niche. Hence, if you needed
a car or new washing machine and wanted an inexpensive source of credit, credit unions were the
place to be.
Credit unions have obviously grown in the past 60 years, but even today they cannot compare to
the enormous growth of the banking industry. Banking is a $5 trillion industry with total per-bank assets averaging $464 million, while the average credit union averages just $28 million. In
1996 the banking industry grew by more than $300 billion - nearly the amount of the total assets
of all U.S. credit unions.
Despite what you may have heard in recent months about credit unions -- banks and credit
unions are different and distinct creatures that complement each other far more than they
compete.
Banks have a wide array of investment powers that credit unions do not have. They offer more
products, they can form holding companies, they can raise capital by issuing stocks. And,
something that is often overlooked, banks can pay their board of directors -- something you'll
never catch a credit union doing because they don't have paid boards of directors.
Banks also have the ability to market their products to anyone who walks in the door, whereas to
join a credit union and use its services, you need to be part of a larger group with a common
bond. Finally, if banks have a unitary thrift charter, they can even affiliate with commercial
holding companies.
Perhaps the biggest red herring thrown into this debate is the one of taxation, and the banks argue
that they cannot compete because they pay taxes. Think about the two entities we're talking
about here:
For me, one of the most memorable moments of the Winter Olympics in Nagano was seeing
little, pint-sized figure skater Tara Lipinski standing next to that champion sumo wrestler, who
outweighed her by something like 475 pounds. I think we know who's the credit union and
who's the bank in that picture, and let there be no debate, if someone stands to get squashed like
a bug in this scenario, it ain't the sumo wrestler. We're talking sheer size.
What often is not mentioned is that credit unions need their tax-exempt status to offset the
disadvantage in raising capital. Remember, credit unions cannot issue stocks like banks. Banks
also seem to overlook their true disadvantage -- which is that they must pay dividends to
stockholders. In fact, banks traditionally pay out more in dividends each year than they do in
taxes.
No one blames banks for wanting to be as successful and profitable as possible. That is their
charter. They are obligated to earn a profit for their shareholders. However, I find it ironic that
at the same moment this Congress is feverishly working to tear down the depression-era
regulations imposed by Glass-Steagall in an effort to make financial services more competitive
and yes, more profitable, we would not act to modify another depression-era law to simply allow
credit unions to continue to grow.
H.R. 1151 should not be considered pro-credit union or anti-bank. Instead it should be viewed as
it was intended -- pro-consumer and pro-competition, both of which are good things.
Mr. Chairman, again, thank you for this opportunity to testify on this important issue. I look
forward to your questions.
Home | Menu | Links | Info | Chairman's Page