Eye on the State: Washington State BanksJoin Forces to Lobby for Limits

Washington State's three banking associations have joined forces to convince the state Legislature to crack down on credit union expansion.

Credit unions nationwide have begun to convert to charters based on geography ra-ther than employment. The reason: A July 1996 court ruling barred occupation-based credit unions from accepting new members from any company that it did not already serve.

The new charters let many credit unions that once served a specific group of members-such as employees of a telecommunications company-may now solicit members in entire cities or counties.

Credit unions were created in the 1930s to serve groups of people who share a common bond, such as belonging to the same church or working for the same company. Because they are nonprofit, credit unions are exempt from income taxes and follow separate regulations.

In Washington, the trade groups-the Washington Bankers Association, the Washington Independent Bankers Association, and the Washington Savings League-are arguing that the state's liberal expansion policies put banks at a competitive disadvantage.

"If the credit unions stay within the original intent of the common bond, then we don't have a quarrel with the tax-exempt status," said James M. Pishue, executive vice president of the Independent Bankers Association. But if credit unions are allowed to solicit residents of entire communities, "then we think they should be subject to taxation and also be required to be regulated like banks."

Credit union officials accused the bankers associations of "ganging up" on them.

John Annaloro, president and chief executive officer of the Washington Credit Union League, said that instead of "conspiring to diminish competition," bankers should be working with credit unions to address issues concerning both groups, such as crime and fraud.

"No consumer in Washington State would benefit if one segment of the state's financial system endeavored to destroy another component of the state's economic engine," Mr. Annaloro said.

In Washington last year, state regulators granted 91 requests to improve-either by conversion or expansion-charters held by credit unions. That is up from 18 in 1994.

Nationwide, credit unions filed 216 conversion applications between July 31, 1996, and Sept. 30, 1997, according to the National Credit Union Administration.

One example of a credit union looking to expand is Supply Credit Union in Tacoma. With assets of $6.4 million, Supply has historically served only members of two related associations. Last month it received approval to solicit the 27,000 residents in the Sumner School District near Tacoma.

J. Parker Cann, director of the state's Division of Credit Unions, said that as long as state law allows it, his office will continue to permit credit unions to serve more than one community, company, or association. "We're not going to place any restrictions where legislation doesn't place them," Mr. Cann said.

With the Legislature's 1998 session kicking off today, lawmakers can expect to hear arguments on both sides of the debate.

Though no one is expecting legislation to be enacted this year- especially in a short session for the Washington legislature-bankers will probably ask lawmakers to eventually change the credit union statutes.

"We feel we are operating at a disadvantage," Mr. Pishue said. "That's our message."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER