Kansas credit unions that count the state or large swaths of it as a field of membership will have to start redrawing their boundaries soon.
About 10 state-chartered credit unions have charters that let them solicit members from either the whole state or large chunks of it. A law slated to take effect July 1 will redefine their fields of membership to a maximum of 1 million people in a metropolitan area or in contiguous counties in rural areas. For new credit unions, or those approved for community charters, the population limit in rural areas will be capped at 500,000.
The law, which Gov. Kathleen Sebelius signed in April, is a compromise of sorts on a multiyear effort by Kansas banking groups to force credit unions with community charters to scale back their fields of membership.
"A lot of banks wished we accomplished a whole lot more — 1 million people in Kansas is a pretty big chunk," said Doug Wareham, senior vice president of government relations for the Kansas Bankers Association, which, along with the Community Bankers Association of Kansas and the Heartland Community Bankers Association, rallied for the legislation. "But the law essentially regionalizes the very large credit unions in Kansas. They are no longer going to be able to claim the whole state."
Affected credit unions will have until January to draw up new geographic fields of membership. Their current branches outside the boundaries will be grandfathered.
Missouri passed legislation last year preventing credit unions from counting the entire state as a field of membership. That law, which prohibits credit unions from expanding beyond counties contiguous to the one where they are headquartered, stemmed from several lawsuits in which bankers tried to block credit unions from expanding statewide.
Keith Leggett, senior economist with the American Bankers Association, said the laws indicate "that policymakers do not believe that tax-exempt credit unions should have unlimited competition with banks."
Vickie Hunt, the chief executive at Credit Union 1 in Topeka, downplayed the impact of the law on her $80 million-asset institution. It will have to scale back its statewide membership, she said, but it still has government employees as its occupational field of membership. "We are making the changes, but we will be able to deal with it very easily," Ms. Hunt said.
Mr. Wareham agreed that the Kansas law might have little impact on credit unions in the short term, because they still have other fields of membership. Nevertheless, he said the legislation was necessary to correct an antiquated statute that was not being enforced.
"We figured that part of the trade-off for being tax exempt was being limited to a well-defined community," Mr. Wareham said. "As we moved through the process, we realized that a number of lawmakers agreed with us."
In 2004 the banking groups approached the Kansas Legislature about having a committee conduct a performance audit on the regulation of credit unions, primarily concerning expansion. In 2006 a legislative committee released a report finding that the Department of Credit Unions' "interpretation of membership requirements doesn't appear to conform to state law" and recommended that the law be amended.
This session banking and credit union groups drafted proposals to change the law and they eventually came together and submitted a version both could support.
"No one is going to have full satisfaction or get everything that they wanted when they compromise," said Marla Marsh, the Kansas Credit Union Association's CEO. "But there needed to be a movement forward for the sake of our consumers."
