Banking industry allies in the Senate rallied this week against legislation to ease membership limits on credit unions.

On the Senate floor Tuesday, Sen. Jesse A. Helms said he opposed "this misguided and tragically misunderstood" bill, because it fails to remove competitive advantages that credit unions have over small banks.

"Congress is setting the stage for the expansion and growth of the credit union industry into thousands of new markets well into the 21st century" while allowing credit unions to remain "exempt from paying the federal taxes that their competitors down Main Street have to pay," the North Carolina Republican said.

Senate Majority Leader Trent Lott said Tuesday that debate on the bill will start late Thursday and that the vote could take place Friday or early next week.

The legislation is expected to pass the Senate easily. The House approved similar legislation 411 to 8 on April 1. However, the banking industry allies plan to push at least two key amendments.

Sen. Richard C. Shelby vowed late Monday to offer an amendment that would exempt banks with less than $250 million of assets from the Community Reinvestment Act.

"Credit unions compete directly with banks and thrifts," the Alabama Republican and Banking Committee member said in a written statement. "Small banks' cost of funds is approximately 40% higher than that of credit unions."

Two of his Republican colleagues on the committee - Sens. Chuck Hagel of Nebraska and Robert F. Bennett of Utah - are circulating an amendment to toughen limits on business lending by credit unions.

It would lower the cap on commercial lending to 7% of assets, from the 12.25% maximum in the version of the bill that Senate Banking approved in late April. Credit unions would have three years to comply with the provision.

The plan would count all business loans toward the cap, striking a provision in the current bill that would exempt loans of $50,000 and under. Loan officers would also be required to have experience in commercial lending.

"Our amendment ensures that consumer loans, not commercial loans, remain the credit union industry's principal focus," Sens. Hagel and Bennett wrote in a draft letter slated to be sent soon to fellow senators. "Our proposed cap is generous, allowing the credit union industry as a whole to expand its commercial lending operations to seven times their current size."

Kenneth A. Guenther, executive vice president of the Independent Bankers Association, said the Hagel-Bennett amendment will have bipartisan support because many lawmakers consider commercial lending a risky activity for credit unions. But he added that it was too early to predict victory.

Democrats fiercely oppose Sen. Shelby's amendment, and Republicans may block it to ensure the bill's quick passage. In addition, Senate Banking's Phil Gramm, R-Texas, is expected to offer an amendment that would strip the bill of CRA-like requirements for credit unions.

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