TOPEKA, Kan. -
Kansas credit union supporters lined up to testify before a special Senate subcommittee hearing in response to a bill sponsored by the Kansas Banking Association (KBA) that would drastically change how credit unions here are regulated and whom they can serve.
If enacted into law, the bill would create new policies and procedures for chartering a CU, merging and establishing the membership of credit unions. In addition, the rules for opening new branches or relocating existing ones would become more complicated
The proposed bill, SB 535, is the culmination of a three-year push by the KBA and the American Bankers Association to limit consumer access to Kansas credit unions, according to officials from the Kansas Credit Union Association (KCUA).
Recent efforts on behalf of the KBA are the result of two intensive studies of the credit union industry–one by the State’s Legislative Post Audit and one by a special legislative interim committee.
The Post Audit found that state-chartered credit unions are not competing at the expense of the banking industry in Kansas, but suggested that the field of membership (FOM) interpretation possibly does not comply with state law.
CUs Rally In Support Of Bill
The hearing on the KBA-sponsored bill falls a little more than a week after credit union supporters spent a day at the Statehouse in support of the credit union-backed bill, HB 2676. The House bill is written simply to clarify the language in the Kansas credit union statute pertaining to field of membership and codify the practices that credit unions have been operating under for many decades.
“In Kansas, numerous banking and credit union regulators have interpreted Kansas’ credit union law consistently for more than 60 years without any question of the legality of the interpretation,” said Haley DaVee, political & public affairs specialist for KCUA.
Credit union proponents have argued for years that the laws under which credit unions operate in Kansas do not need to be changed and that the banking associations are being motivated by avarice, despite already possessing a commanding market share of financial institutions in the state.
“Even now, this issue is raised, not by consumers, but by the banking industry, who has the most to gain by further restricting whom and where credit unions can serve,” said DaVee.
While the number of state-chartered credit unions in Kansas stands at 89, according to NCUA statistics, traditional banks number approximately 358. Further, data from the FDIC and NCUA indicate that Kansas banks command a whopping 97.4% of total assets while credit unions’ share is about 5.3%.
Still, KBA officials said the language of the laws currently on the books need to mirror the language regulating the state’s 24 federally chartered credit unions.
“We think the proposal as a whole is valid,” KBA president Chuck Stones said. “One question of concern that we have is when credit unions open new branches, they provide the public with more transparency.”
DaVee argued that the state does not need SB535 and that its language is redundant.
“After two full days of hearings last fall the interim committee concluded, not that the interpretation of the FOM language was wrong, but that some of the terms in the statute could be clarified. This is what the KCUA-backed bill, HB 2676, does,” she said.
1998 Supreme Court Decision Cited
“We believe that the interpretation is consistent with the language in our statute. Further, this interpretation has allowed Kansas consumers the opportunity to choose which financial provider is right for them,” DaVee argued.
But Stones insists that the subcommittee should be guided by a 1998 Supreme Court decision that pitted NCUA (better known as the AT&T Family FCU case) against the banking industry. In that decision, the court ruled five-to-four that a single common bond must unite each and every member of a credit union. That decision was then rendered moot by the passage of the Credit Union Membership Access Act.
That model is one that many credit union supporters believe will severely restrict the ability of credit unions, both now and in the future, to grow and expand membership.
Lee Williams, CEO of the $58-million Central Star Credit Union said SB535 would force the CU to revert back to single FOM.
“We’ll be stagnant and have slow growth because the bill says we cannot add additional members from within the FOM like related family members,” she said. “It hinders our ability to grow and diversify and we’ll end up imploding.”
John Beverlin, CEO of the $195-million Credit Union of Johnson County, said that KBA’s desire for more transparency whenever credit unions open new branches is simply a way for banks to complicate CUs efforts to expand by tying them up in legal and bureaucratic red tape. “I think the banks would file a complaint with the state every time a credit union tries to open a new branch,” Beverlin said. “I think we have a real battle on our hands and we are concerned.”
The battle between the banking industry and credit unions in Kansas is anything but novel. Two years ago, the KBA took on the credit unions when 12 Wichita credit unions announced they were considering shared branching. The Wichita Business Journal quoted Stones as saying in response that the move “blurs the lines between credit unions and banks.”
Beverlin thinks the banks are also attempting to gain a monopoly in the Kansas City metro area and that the bill would restrict credit union access to members who commute in and out of Missouri. “More and more, it’s becoming the Kansas City area so the bill will make it difficult to compete with banks on the other side of the state line,” he added.
Jim Holt, CEO of the $118-million MidAmerican CU, argued that under the proposed bill, existing members are grandfathered in but it limits growth completely outside certain FOMs. “As you lose members to attrition you wouldn’t recoup new ones,” he said. “It’s a back door approach to limiting credit union growth.”
The road to SB535 becoming law is still a long one. Currently, both bills have received hearings. The KCUA backed credit union bill, HB 2676, was heard before the House Insurance and Financial Institutions Committee on Jan. 30 and 31.
“Our hope is that the Kansas Legislature will recognize that Kansas consumers need more options instead of less, especially given the current economic environment,” DaVee said. “This is not the time to further restrict a consumer-friendly financial option in the Kansas marketplace.” (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com
