WASHINGTON — The House was expected to pass a bill late Tuesday that would let thrifts increase lending to businesses, credit unions expand their customer base, and all financial institutions pay interest on business deposits.

The legislation combined prior measures that had been drafted separately for credit unions and banks in order to ensure both industries supported it. Though banking trade groups lauded a measure that would allow unlimited small-business lending by thrifts and double the cap on loans to large business, to 20% of their portfolio, support for the overall bill was measured.

"We are not opposing the credit union provisions; we support the bank and thrift portion," said Karen Thomas, the director of government relations for the Independent Community Bankers of America.

The ICBA and American Bankers Association withdrew their opposition to earlier drafts of the bill after the credit union provisions were diluted.

The bill, by Rep. Paul Kanjorski, R-Pa., would allow all credit unions to expand services in underserved areas with low income levels and high unemployment, a privilege now granted only to credit unions with certain charters. It would also exempt member business loans made in underserved areas from credit unions' standard 12.25% cap on business lending.

Credit unions would also be permitted to make short-term loans meant to provide customers with alternatives to payday loans.

But the bill is far short of what credit unions had originally sought. An earlier bill, the Credit Union Regulatory Improvements Act, also by Rep. Kanjorski, would increase the overall business-loan cap for credit unions to 20% and give authority to the National Credit Union Administration to set capital levels according to risk.

Rep. Kanjorski drafted a less controversial version to speed up enactment of some provisions. But that version was watered down even more to appease banking industry critics, including narrowing the definition of underserved areas that qualify for credit union services.

Those measures were combined with Kansas Democrat Dennis Moore's regulatory relief bill for banks and thrifts.

"Obviously, we have legislative issues in addition to the ones that are in this bill, but we think that the combined bill represents a good first step toward the kind of regulatory relief that" credit unions "need to serve their members," said Ryan Donovan, the vice president of legislative affairs for the Credit Union National Association.

The bill would remove a 35% portfolio cap on auto loans by thrifts, amend federal law to allow interest checking accounts for all businesses, and allow institutions to skip annual privacy disclosures if they have not changed their practices.

Kip Weissman, a partner at Luse Gorman Pomerenk & Schick PC, said the thrift provisions are long overdue but could be a "double-edged sword" for an industry fighting for charter choice.

"There was a time when the thrifts didn't have the management to pull off these loans, and the regulators didn't have the experience of regulating these loans. That was several generations ago," Mr. Weissman said.

But, he said, the reforms bolster arguments that banks and thrifts are more alike and that the thrift charter should be a thing of the past. "If you believe in diversity, then you could be concerned," he said.

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