A 10-year-old Girl Scout gave the credit union industry a black eye with testimony before House Banking's subcommittee on consumer credit last week.

Ryan Lorraine Cobb of Arlington, Va., told the committee how her account with State Department Federal Credit Union was wiped out when a check she deposited bounced.

Industry lobbyists joked about the hearing, with one calling it "a great dog-and-pony show." But it's clear the hearing put credit unions -- which usually charge lower fees than banks and are traditionally seen as a better deal for consumers -- on the defensive.

"Anytime you have a witness like her who lost a variety of money for reasons beyond her control, it makes the industry look bad," said David John, a lobbyist for the National Association of Federal Credit Unions.

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Higher than the Average Bank

In fact, State Department Federal's $12 deposit-item return fee is two to three times higher than that of the average commercial bank, said Chris Lewis, banking lobbyist for the Consumer Federation of America.

National Credit Union Administration Chairman Norman E. D'Amours said the fees the credit union charged the girl were "too high and a way out of line with what I presume costs to have been."

"It's something we're going to look at very carefully," Mr. D'Amours said. "Credit unions should not look at fees as a profit center."

Ironically, employees of the federal regulator fall under the customer base of State Department. Mr. D'Amours said he isn't a member.

John Adkin, president of $324 million-asset State Department Federal, would not comment.

Generally, credit unions compare favorably to banks when it comes to fees, said consumer advocates and industry officials.

"As a class of institutions, credit unions are less creative in coming up with new fees than banks," Mr. Lewis said. "My sense is they use fees more in an effort to recoup costs" than to generate net income.

Figures compiled by NAFCU indicate credit unions don't view fees as a profit center.

Almost 7% of Income

For the 4,867 federally chartered credit unions that charged fees in 1993, fees represented $832 million, or 6.9%, of total income of $12.1 billion.

In 1993 about two-thirds of all federal credit unions charged fees.

"Credit unions look at fee income as way of getting income for services provided, and the fees credit unions charge tend to be lower than banks," said Tun Wai, chief economist for the Arlington-based trade group.

But fees have represented a growing portion of income for all federal credit unions, Mr. Wai said. In 1993, fees represented 6.4% of income for all federal credit unions, up from 3.72% in 1990.

Mr. Wai said fees are on the rise because credit unions are offering more services. The regulator also has encouraged credit unions to charge fees to offset operating expenses, he said.

For example, when the agency issued its final rule on the Truth in Savings Act last year, it suggested that credit unions impose fees or higher opening balance requirements if they were worried about increased costs from customers making more transactions.

The rule required credit unions to pay interest on daily or average daily balance, instead of on the low balance in a period.

Low or no fees can mean a competitive edge for credit unions, said John Siefken, president of Citizens Equity Federal Credit Union.

No Balance, No Fee Either

With its no-fee checking, Peoria, Ill.-based Citizens Equity "can eat the bankers' lunch," Mr. Siefken said.

"You can run your checking account to zero and not get a fee," he said. On bounced checks, the credit union works on a case-by-case basis.

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