Credit union expansion may replace financial modernization as the most contentious financial services issue on Capitol Hill this year, Rep. Jim Leach predicted.

"The credit union debate could be a much more dicey problem than bank modernization," the House Banking Committee chairman said in an interview.

While he would not tip his hand, Rep. Leach pledged to hold hearings "with an open mind to all parties."

The Iowa Republican said lawmakers must decide two things: whether credit unions have an unwarranted competitive advantage and whether customers will be hurt if the industry's growth is restricted.

"I am committed to the notion that the end result has to benefit the American consumer," Rep. Leach said.

The well-respected credit union lobby wants lawmakers to pass legislation that would reverse a July 1996 court decision that blocks it from expanding beyond its original membership group.

The court decision resulted from a lawsuit brought by banks, which will be lobbying to preserve their victory in the courts. Once the issue is opened on the Hill, many bankers also want to require credit unions to pay income taxes.

The fight has all the makings of a deadlock-producing dispute, Rep. Leach said during a wide-ranging conversation.

He said he is confident Republican leaders will not thwart banking legislation, despite being angry over his vote against House Speaker Newt Gingrich's reelection. Rep. Leach conceded, however, that party leaders may exclude him from GOP strategy sessions.

After tackling legislation designed to make insurance more available for homeowners in disaster-prone regions, House Banking will return to its work of reforming banking laws. Despite serious differences among key players, Rep. Leach remains unabashedly optimistic that legislation can be enacted.

He said he is encouraged because both the Treasury Department and the Senate Banking Committee Chairman Alfonse M. D'Amato are pressing for legislation after sitting on the sidelines during the last Congress.

"The administration is committed to change-very much so," Rep. Leach said. "I am confident Sen. D'Amato sincerely wants a bill."

Rep. Leach, who introduced a modernization bill Jan. 8, expects a furious debate over whether to allow banks and nonfinancial firms to own each other. But he predicted that lawmakers and the administration can reach an agreement as long as all sides keep talking.

"The seriousness of the issue makes it very difficult," he said. "But the differences will be (worked) out."

Rep. Leach continues to oppose any mixing of banking and commerce, but the Treasury Department and Sen. D'Amato favor broad affiliation between banks and nonfinancial firms. Furthermore, key members of Rep. Leach's own committee support broader cross-ownership of banks and commercial firms.

Rep. Marge Roukema, R-N.J., has introduced legislation that would allow bank holding companies to earn a limited amount of income from commercial businesses. Rep. Richard Baker, R-La., is expected to introduced a separate bill allowing unlimited mixing of banking and nonfinancial firms.

Rep. Leach, who was criticized for dominating the modernization debate in the last Congress, pledged that Reps. Roukema and Baker will play bigger roles this time. Both lawmakers chair subcommittees that have jurisdiction over new bank powers. Rep. Leach said he will wait until their panels have held hearings on the issue before taking in up at the full committee.

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