The National Credit Union Administration discriminates against small credit unions in financial distress, its chairman said Monday.

In a speech to 3,000 credit union officials here, Norman E. D'Amours said his agency "too often" merges ailing small credit unions out of existence, while its examiners try to nurse large institutions back to health.

That policy is unfair, he said, because small credit unions are especially adept at serving the neediest consumers.

"Small credit unions ... are in that underserved low-income neighborhood," Mr. D'Amours said. "They are known to the people. There's a level of trust and a level of accessibility that a large credit union would have difficulty matching."

Mr. D'Amours's remarks received a mixed reaction. NCUA board member Dennis Dollar urged credit union officials to ignore "disciples of division" such as Mr. D'Amours, who threaten to "drive a wedge" in the movement by highlighting the differences between large and small institutions. Fragmenting the industry will hurt all credit unions, he said.

This debate marred an otherwise celebratory morning at the Credit Union National Association's annual government affairs conference, which brings members in from around the country to lobby lawmakers. Last year's conference was jolted by a Supreme Court decision limiting credit union expansion, which the group later convinced Congress to overturn.

"Isn't it great to be in Washington as a winner?" said CUNA president Daniel A. Mica. "You won."

Mr. D'Amours predicted that the credit union regulator would successfully defend itself against the American Bankers Association's recent lawsuit challenging membership rules enacted after the Supreme Court loss. (A federal judge hears arguments today in the case.) He also praised credit unions for their solid net worth and low chargeoff rates.

Nancy L. Pierce, chief executive officer of a Missouri credit union and CUNA's chairman, praised the group for raising $1.3 million for the 1998 elections, a 50% increase over the previous election cycle.

Several speakers challenged the idea of imposing federal income taxes or Community Reinvestment Act requirements on credit unions.

Ms. Pierce said that credit unions have a "social mission" to help their members achieve a sound financial footing, something banks do not. She added that credit unions' cooperative format makes them different.

"It's the structure, stupid," she said.

Sen. Wayne Allard, a Colorado Republican who sits on the Banking Committee, said he too opposed taxing credit unions or subjecting them to CRA-like rules.

Instead, he said, his goal is to lower taxes and regulatory burdens on financial institutions of all types. "Applying this to credit unions makes no sense," he said.

House Banking Committee Chairman Jim Leach, R-Iowa, praised credit unions for their ability to respond to community input. CUNA awarded him a plaque for helping enact the credit union expansion law last August.

Richard S. Carnell, assistant secretary for financial institutions at the Treasury Department, praised the safety-and-soundness provisions included in the recent credit union law. He added that his staff is conducting research for congressionally mandated studies. This includes research on credit union business lending and the industry's federal income tax exemption. Also, Treasury is studying the differences between regulation of credit unions and banks and thrifts.

Ms. Pierce and Mr. Mica used the conference to sell a proposed dues hike for the trade group, which claims 93% of all credit unions as members. CUNA members will vote on the proposal this spring.

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