DATE: Tuesday, February 25, 1997            TAG: 9702250002

SECTION: FRONT                   PAGE: A14  EDITION: FINAL 

TYPE: Opinion 

SOURCE: BY EUGENE H. FARLEY JR. 

                                            LENGTH:   78 lines

CREDIT UNIONS SHOULD REMAIN EXEMPT

If you read Walter Ayers' recent column (``Not all credit unions deserve tax-free status,'' Another View, Feb. 15), you might conclude that credit unions have an unfair advantage over banks. You need to know the rest of the story to understand why bankers don't want consumers to have the right to choose credit unions.

Mr. Ayers, executive vice president of the Virginia Bankers Association, states that the credit-union system's percentage of growth is greater than the banking industry. What Ayers fails to reveal is that the $5.4 trillion banking industry grew by more than $300 billion last year - an amount almost as great as the total assets of all credit unions combined.

Ayers noted that Navy Federal Credit Union has eight times the assets of most Virginia banks. But Navy Federal is by far the exception rather than the rule. Nationally, the average credit union has less than $28 million in assets. That's less than one-sixteenth the size of the average American bank.

Ayers also asserts that Navy Federal Credit Union competes with smaller banks for ``customers.'' This just is not true. In order to do business at a credit union, people must become ``members'' - namely, they must belong to a common occupational or associational group or live or work within a certain community area.

Charging that credit unions have ``handpicked'' their members, Mr. Ayers claims that credit-union members have higher incomes than bank customers. Data provided by his own organization refute this. The American Bankers Association 1996 Survey, conducted by Gallup, indicates that consumers who use credit unions as their primary financial institution have average household incomes of $46,623; consumers who regard banks as their primary financial institution have average household incomes of $51,449. Ayers uses figures to indicate that banks make more home loans in disadvantaged neighborhoods than credit unions do. But banks make more home loans everywhere than credit unions do. Banks control almost half of the market for home loans; credit unions' slice of the pie is a meager 8 percent.

Ayers refers to the Credit Union Act of 1934, claiming that bankers have no quarrel with credit unions that adhere to that original standard. Just as banks do not operate in a 1930s world, so have credit unions grown and changed in order to survive. Credit unions were created to serve the needs of average American consumers in an industrial and rural economy vastly different from today's.

In the early 1980s, the U.S. economy underwent a major restructuring characterized by unprecedented interest rates and widespread corporate mergers. The National Credit Union Administration responded to these changes in 1982 by allowing federal credit unions to include multiple groups in their fields of membership. NCUA did this because it believes that small groups of employees who could not support a credit union of their own should be allowed to combine with existing credit unions. It also believes that the safety and soundness of the National Credit Union Share Insurance Fund was best protected by allowing credit unions to diversify their membership base.

Obviously, this has not set well with bankers, who realize that credit unions have an opportunity to offer membership to more and more Americans. Any consumer, given the choice, likes to save money. How many consumers want to pay the high fees associated with bank services - when most of the same services at credit unions are free? Last summer, the Consumer Federation of America published an extensive study which indicates that the average consumer could save $100 per year in fees - simply by switching from a bank to a credit union.

Mr. Ayers and other bankers are now pointing the finger at credit unions' tax-exempt status, claiming it as a ``taxpayer subsidy'' which was granted because credit unions were intended to serve small groups of ``people of small means.'' This is not the case. Credit unions are tax exempt because they are member-owned, not-for-profit financial cooperatives. Credit-union institutional income (in excess of expenses and required reserves) is transferred to the members - in the form of dividends, interest refunds, highest rates on savings and lower rates on loans. As such, there are no institutional ``profits'' to tax.

Banks focus exclusively on profits; credit unions focus on people. Banks operate for the good of their stockholders; credit unions operate for the good of their members. This concept threatens bankers. They seek to remove that threat by so limiting the ranks of those who are eligible for credit union membership that the average American consumer is essentially forced to accept whatever the bank has to offer. And who will benefit from that?

Send Suggestions or Comments to webmaster@scholar.lib.vt.edu