ALEXANDRIA, Va. - National Credit Union Administration Director Shirlee P. Bowne fears the agency may be going too far in its campaign to shield small institutions from competition.

If part of a credit union's membership base is dissatisfied with its service, another financial cooperative should be allowed to serve it, she said in an interview.

Although competition between credit unions is controversial - and everyone believes in the sanctity of small institutions, from NCUA chairman Norman E. D'Amours to trade groups - it is a fact of life in the financial industry, she said.

"People won't use a credit union that's inconvenient for them to use, and if they can't join another credit union they'll go to another financial institution," said the lone Republican member of the NCUA's three-member board of directors.

Ms. Bowne is the only board member who takes such a free-enterprise attitude. During a July 27 meeting, the board voted to protect tiny Bureau of Prisons Terminal Island (Calif.) Federal Credit Union from the larger Army Ordnance Depot Federal Credit Union, Bynum, Ala.

The situation was especially thorny because two regional directors disagreed over what course to take. Army Ordnance Depot Federal is in the agency's Southeast region, and Acting Director Timothy McCollum thought the membership overlap should be approved. West Coast Regional Director Daniel L. Murphy opposed it.

In a 2-1 vote, NCUA Chairman Norman E. D'Amours and Robert S. Swan sided with Mr. Murphy. They agreed that if the expansion were approved, other credit unions would nibble at the $12 million-asset California institution's narrow membership base of 18 federal prisons. A depleted membership could create safety and soundness problems at the credit union, they said.

Further, Mr. D'Amours argued that if the disputed members of the prison credit union - employees of the Federal Correction Institute in Talladega, Ala. - wanted better service, they ought to try to improve the credit union from the inside.

Those arguments didn't satisfy Ms. Bowne.

In trying to protect the membership base "we might be trying to keep the buggywhip in place," she said at the meeting. "I'm less concerned about the number of credit unions than the number of credit union members."

NCUA policy tries to avoid membership overlaps between federally chartered credit unions. When a credit union tries to widen its membership base, a regional director reviews - among other criteria - the financial effect on nearby institutions; the desire of the membership and its sponsor; and the best interests of the affected group.

Ultimately, Mr. Murphy said the financial effect on the Terminal Island credit union justified denying Army Ordnance Depot Federal's expansion.

But Ms. Bowne said the NCUA should decide the relative importance of each criteria - with the desire of the membership near the top.

"There's a lack of consistency" in applying the policy, she said. "Had we not had region six (the West Coast) to deal with, it would have been approved."

Mr. D'Amours sees no reason for a revision of the procedure. "I don't think we need to make any changes or additions," he said in an interview.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.