Handing the banking industry a series of defeats along the way, the Senate overwhelmingly approved legislation Tuesday that would ease membership limits on credit unions.
Under the bill, occupation-based credit unions would be able to serve unrelated companies as long as they have less than 3,000 employees. The 92- to-6 vote would overturn a Feb. 25 Supreme Court decision requiring credit union members to share a single, common bond.
"This legislation saves the credit union movement," Senate Banking Committee Chairman Alfonse M. D'Amato said. "We passed a good bill for working Americans."
Credit union leaders were elated as they took another step toward reversing the banking industry's successful court action begun eight years ago when it sued to block the expansion of AT&T Family Federal Credit Union in North Carolina.
"We have been climbing this hill since 1990," said Kenneth L. Robinson, president of the National Association of Federal Credit Unions. "Now we have gotten to the top and the view looks great from here."
Paul A. Schosberg, president of America's Community Bankers, accused the credit union lobby of using "fearmongering" on Capitol Hill to preserve their competitive advantages as tax-exempt institutions. "The bill is nothing more than the credit union conglomerate expansion act-eliminating any vestige of traditional membership requirements, thus allowing credit unions to explode their memberships and their $1 billion-a-year tax subsidy," he said.
Banking lobbyists expected to lose in the Senate after the House passed a similar bill by an overwhelming 411-to-8 margin on April 1, but they had hoped to walk away with some token victories.
Instead, the Senate defeated two pro-bank amendments that would have tightened the bill's limits on commercial lending by credit unions and reduced Community Reinvestment Act burdens on banks. Also, CRA-like requirements for credit unions were stripped from the bill.
"It was a black day for the banking lobby," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America.
Unlike the House version, the Senate bill would impose new limits on credit unions, such as a 7% ratio of capital to total assets and a cap on commercial loans at 12.25% of assets.
No official decision has been made, but the House is expected to bypass a time-consuming conference committee and adopt the Senate bill as early as next week.
Bankers lost three key amendment votes on the Senate floor. A bid by Sen. Richard C. Shelby to exempt small banks under $250 million of assets from the Community Reinvestment Act was foiled when senators voted 59 to 39 to table it Tuesday morning.
The Alabama Republican argued that it was a matter of fairness. The bill "essentially eliminates the common-bond requirement, allowing credit unions to serve any group," Sen. Shelby said. "Credit unions are increasing their market share over community banks .... The small bank exemption has everything to do with competitive equity."
But Republican and Democratic leaders said rolling back the landmark CRA law would guarantee a presidential veto. "A vote in favor of the Shelby amendment is a vote against the credit union legislation," said Sen. Christopher J. Dodd, D-Conn.
The Senate approved on a voice vote a proposal by Sen. Phil Gramm to delete requirements in the bill that credit unions serve people of modest means in their field of membership.
Backed by Sen. D'Amato, Sen. Gramm argued that credit unions were cooperatives that by definition serve their members and should not be forced to offer services to people who had chosen not to join.
Sen. Don Nickles of Oklahoma, the Republican whip, called the amendment votes a slap in the face of the banking industry. "We are going to exempt credit unions from CRA but we are not even going to exempt small banks?" he asked. "That's not fair."
Sen. Nickles was one of the six members to vote against the overall bill. The others, all Republicans, are: Daniel Coats of Indiana, Chuck Hagel of Nebraska, James M. Inhofe of Oklahoma, Connie Mack of Florida, and Pat Roberts of Kansas. Sens. Jesse A. Helms, R-N.C., and Tom Harkin, D- Iowa, did not vote.
In voting Monday night, the Senate agreed 53 to 42 to table a proposal by Sens. Hagel and Robert F. Bennett, R-Utah, that would have restricted commercial loans to 7% of credit union assets instead of the 12.25% in the legislation.
Sen. D'Amato and Sen. Paul S. Sarbanes, the Banking Committee's ranking Democrat, staunchly opposed the Hagel-Bennett amendment as unnecessary and threatening to a carefully crafted bipartisan compromise.
Sen. Hagel argued that his amendment would "prevent the unchecked expansion by credit unions into commercial lending," which he said was beyond their public mission. He criticized the cap in the bill as too high and "essentially meaningless" because it would exclude loans under $50,000 from counting toward the cap.
But Sen. D'Amato labeled as "hokum" the contention that business lending by credit unions would be excessively risky, noting that they had lower failure rates on commercial loans than banks.
Daniel A. Mica, president of the National Credit Union Administration, vowed to fight the business lending limits. "If we can change that in any way, now or in the next Congress, we will," he said.
Mr. Guenther said the industry stands ready to fight back. "What happened today is a prescription for ongoing war between the banking lobby and the credit union lobby," Mr. Guenther said. "They got greedy."
The administration opposed the Gramm amendment, and its acceptance could lead President Clinton to veto the bill, but banking and credit union lobbyists consider it unlikely.