Reluctant to choose sides, lawmakers are expected to force banks and credit unions to compromise on legislation laying out the nonprofit institutions' future.
That became clear during a House Banking Committee hearing Wednesday sparked by the Feb. 25 Supreme Court ruling that credit union members must share a single, common bond.
The banking industry wants to build on that victory by asking Congress to require large credit unions to pay taxes and comply with a host of regulations including community reinvestment rules.
But credit unions are asking lawmakers to reverse the court decision and ease membership restrictions.
"The best public policy is somewhere in between these extreme positions," said Rep. John J. LaFalce, D-N.Y.
But like other members of the committee, Rep. LaFalce said Congress is not likely to start taxing credit unions.
"Issues such as taxation are extraneous to the core issue before this committee: the need to define credit union membership for today's financial marketplace," said Rep. LaFalce, the committee's ranking Democrat.
Community reinvestment tests would be reasonable, agreed Rep. Bruce F. Vento, D-Minn., but efforts to levy taxes would "cause major heartburn" and membership should be broadened because of changes to the economy.
Rep. LaFalce said he favors allowing occupation-based credit unions to continue serving existing members, but barring them from adding employee groups above a certain size.
He would also impose community reinvestment requirements on credit unions with more than $25 million of assets unless they meet minimum standards of service to credit union members.
Rep. Richard H. Baker, R-La., introduced a bill Tuesday that would let occupation-based credit unions keep members as of Feb. 25 and continue recruiting new members from groups that they already serve. He suggested postponing broader credit unions issues.
Most lawmakers are looking for a compromise, said Geoff Bacino, a credit union consultant here. They do not want to alienate the 70 million credit union members nationwide or bankers who make large campaign donations.
"They are going to be forced to come up with a common ground," he said. "That is going to be the question: 'What is everyone willing to take? Are you willing to take half a loaf?"
For now, banks and credit unions are standing firm.
"Our position continues to be no compromise," Daniel A. Mica, president of the Credit Union National Association, said in an interview.
At the hearing, witnesses for the banking industry explained their proposal to force large credit unions to pay taxes as well as comply with the Community Reinvestment Act and bank-like safety and soundness regulations.
"Codifying the multiple common bond policy now would be like removing all the speed limits on our highways," testified Jeff Plagge, president of First National Bank in Waverly, Iowa.
Current members would not be kicked out of credit unions. Most credit unions would continue to operate free of taxes and new regulations but could not add groups from unrelated companies or have commercial customers.
"They are robbing the taxpayer to pass on benefits to members that are better off than the average American," testified John D. Garrison, chairman of Walden (N.Y.) Savings Bank.
Meanwhile, a host of lawmakers said they oppose linking any credit union bill with the broader financial services reform legislation.
Rep. Baker said the fate of the reform bill is "very complicated and uncertain" and that the credit union controversy needs to be solved this year.
Rep. LaFalce agreed and said banks and credit unions opposed combining the bills.
"No decision has been made," Committee Chairman Jim Leach said during a press conference Wednesday on the financial reform bill. "It remains an open question."