Republican leaders recovered from an embarrassing defeat on financial reform when the House approved legislation Wednesday easing credit union membership limits.

Winning on an overwhelming 411-to-8 vote, the bill would undo the banking industry's recent Supreme Court victory by letting occupation-based credit unions serve an unlimited number of small companies. The Senate is expected to approve a similar measure soon; the Senate Banking Committee is scheduled to hold a hearing on the issue today.

"I applaud the strong message the House sent today by overwhelmingly passing the bill to protect credit unions and their members," Senate Banking Chairman Alfonse M. D'Amato said. "I expect the Senate will soon take up similar legislation."

House Republican leaders suffered a bruising defeat Tuesday, abruptly withdrawing legislation restructuring the financial services industry.

Rules Committee Chairman Gerald Solomon, R-N.Y., said a barrage of calls from irate bankers forced him to yank a procedural proposal to insert the credit union bill into the long-sought financial reform bill.

"The phones are ringing off the hook," said Rep. Solomon. "This lobbying effort is something I've never seen in my life here."

To save the credit union measure, House leaders detached it in time for a vote Wednesday. They used an expedited voting process that required a two-thirds majority and barred amendments.

House Republican Conference Chairman John A. Boehner, the point man on financial reform, vowed to bring the bill back for a vote in early May when lawmakers return from their Easter recess.

The Ohio Republican admitted that House leaders' strategy to use the credit union bill as a way to attract votes to the controversial reform measure-which would have permitted a convergence of the banking, securities, and insurance businesses-had backfired.

"Putting the two measures together put members in a difficult position," Rep. Boehner said.

Most banks and thrifts oppose both bills, contending they would be robbed of existing powers and cede advantages to other industries. Voting for the combined bill meant doubly angering bankers, but voting against risked a negative reaction from the nation's 70 million credit union members.

"A lot of members felt it was piling on the banks, particularly the small and medium-size banks," said Rep. Michael G. Oxley, R-Ohio.

The industry's opposition was bolstered by Democrats and a veto threat from the Clinton administration.

To improve the financial reform bill's chances in May, House Banking Committee Chairman Jim Leach said he plans to make several pro-bank changes. "This was a very carefully balanced bill, but it may need more balancing," he said. "We have to come back a little bit stronger on national banks."

But changing the bill risks alienating its supporters. Still leaders in the securities and insurance industries pledged to renew efforts to pass the reform bill this Congress.

"We will engage again in early May," said David J. Pratt, senior vice president of federal affairs for the American Insurance Association. "We will use the time to continue to educate members. These are esoteric issues. ... Sometimes it is easier to vote 'no' when you get confused."

Others predicted financial reform is dead for this year, mainly because there will not be enough time for the Senate to act.

"It will be waiting until the next Congress," predicted Rep. John D. Dingell, D-Mich.

Under the credit union bill, occupation-based credit unions could continue serving current members and add new ones from groups they already serve. These nonprofit institutions could add members from companies with fewer than 3,000 employees.

Members would have to be located within "reasonable proximity" of the credit union. Only people from a member's "immediate family or household" could join through a member.

Credit union regulators are also required to promulgate rules that impose capital and other supervisory requirements on credit unions and require them to serve members of "modest means."

The leadership dropped a provision that would have let the Federal Reserve Board pay interest on required reserves. That provision originally was intended to entice bankers to support the bill, but the Clinton administration opposed its estimated $800 million price tag over five years.

Credit unions went to Congress after the Feb. 25 Supreme Court ruling that members must share a single, common bond.

Banking industry lobbyists warned against giving up on reshaping the credit union bill in the Senate or celebrating the defeat of the reform bill.

"It is a long fight with many rounds," said Edward L. Yingling, chief lobbyist for the American Bankers Association. "We won a round (Tuesday), but we do not know about the outcome of the fight until the Congress goes out in October."

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.