The Credit Union National Association's decision to support a bill extending the federal government's reach over state-chartered institutions has split the organization.

On one side is the leadership of the industry's largest trade group, which backed the bill in a May 19 letter as the lesser of two evils. On the other are leaders of some state associations, who say the bill introduced by Sen. Alfonse D'Amato, R-N.Y., and Sen. Paul Sarbanes, D-Md., tramples states' rights.

"Credit unions that are calling their league presidents are making this an issue, and that's been true in our case," said David Chatfield, president of the California Credit Union League, a subsidiary of CUNA.

The state trade association voted to oppose the bill, Mr. Chatfield said, although CUNA is working to put it into acceptable form.

"The bill is not one we are happy with," Ralph S. Swoboda wrote in a June 20 letter to the Indiana Credit Union League's president, John W. McKenzie, who also had raised concerns.

But "given the bipartisan support of those two powerful and influential committee members, we felt that our chances of blocking the bill were, and are, zilch," Mr. Swoboda said. By supporting the bill, CUNA could possibly soften it.

The Indiana League is reviewing whether to support the bill, known as the Credit Union Reform and Enhancement Act.

The bill, introduced June 6, would increase the National Credit Union Administration's power to limit the investment and loan powers of state credit unions. It also would expand the agency's authority to seize and liquidate state-chartered institutions.

The current proposal is toned down from an earlier version. Originally, the bill barred state credit unions from asset powers not permitted to federally chartered institutions, unless they could get a waiver from the NCUA. This was modified to "grandfather in" credit unions that were exercising such powers before May 31.

The grandfather clause was offered May 12 by Joe Jiampietro, counsel to the Senate Banking Committee, Mr. Swoboda's letter said.

Six days later, the committee's staff director, Howard Menell, told CUNA's Washington office that no further change would be made in the bill before its introduction and demanded a letter of support by the end of the day, Mr. Swoboda said.

Otherwise, Sen. D'Amato, the committee chairman, planned to introduce the earlier, tougher version of the bill, Mr. Swoboda said CUNA was told.

Sen. D'Amato's staff suggested that changes could be made during mark- up, which could be as early as Tuesday.

Members of CUNA's executive committee couldn't be reached, so Charles O. Zuver, the association's director of governmental affairs, sent a letter of support.

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