DATE: Saturday, August 9, 1997              TAG: 9708090295

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

                                            LENGTH:   48 lines

BANKS TURN UP THE HEAT ON EXPANSION OF CREDIT UNIONS

A long-simmering battle between Virginia banks and credit unions began to boil Friday with a state banking organization asking for regulatory limits on credit-union expansion.

In a filing with the State Corporation Commission, the Virginia Bankers Association asked the state's chief regulatory body to restrict the ability of credit unions to expand their fields of membership.

``Some of the larger credit unions are basically full-service banks,'' said Walter Ayers, executive vice president of the bankers' association.

``The traditional legislative intent was that credit unions would serve individuals with a single common bond,'' he said.

Community banks in Virginia have argued for years that larger credit unions with diverse fields of membership have siphoned away business that would have gone to banks.

Credit unions have replied that they provided affordable financial services, including loans, at a time when banks have raised their fees and closed branches.

A spokeswoman for the Virginia Credit Union League said the organization was not surprised by the bankers' petition.

``The Virginia bankers are bringing to the state level the same shenanigans that have gone on across the country,'' Donna St. Clair, the league's spokeswoman, said.

Bankers and credit unions have fought over the same membership-eligibility issue in several other states, including North Carolina and Texas. Earlier this year, the Supreme Court agreed to hear a case involving membership expansion at the A&T Family Federal Credit Union in North Carolina. The court is scheduled to hear the case in October.

For decades, membership in a particular credit union was restricted to individuals who shared a specific bond, usually the same employer, fraternal group or church.

Since the early 1980s, federal regulators have allowed credit unions to take in groups that were unrelated to the organization's original field of membership.

Without this broader definition of eligibility, many people who work at small businesses would not be able to use a credit union, said St. Clair of the Virginia Credit Union League.

But Ayers of the Virginia Bankers Association said the tax-free status of credit unions has given the larger ones an unfair advantage over banks. If they want to serve a broad field, credit unions should be taxed, he said.

``At the end of the day, this is basically a tax issue,'' said Ayers.

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