Legislation proposes guidelines for credit unions

Senate Bill 591, which passed the Missouri General Assembly, creates new guidelines for geographic expansion of the state’s credit unions.

Under SB 591, credit unions would be limited to doing business in the county where their main office is located plus any contiguous counties.

The bill’s sponsor, Sen. Delbert Scott, R-Lowry City, said the legislation is the result of six months of negotiations between bank and credit union representatives.

The bill was awaiting Gov. Matt Blunt’s signature at press time.

Ongoing conflict

Banks and credit unions have butted heads before, due in large part to the fundamental differences between the two. Banks operate as for-profit businesses, subject to federal taxation and regulation from the Federal Deposit Insurance Corp. Credit unions are not-for-profit, and therefore, not subject to the same regulations.

The latest round of disagreements, however, dates back to 1998, when legislation was passed that allowed credit unions to choose between limiting their fields of membership based on a “well-defined local neighborhood” or to stick with serving only particular groups or industries.

Banks were unhappy with the way the 1998 law was being interpreted – some credit unions used area codes to determine their service areas, and others used ZIP codes or county lines.

At least 10 lawsuits were filed by the Missouri Bankers Association and member banks against credit unions and the state, arguing that expansion requests filed by credit unions and granted by the state allowed the credit unions to expand beyond what should have been allowed.

The issue was further complicated in March 2006, when the Cole County Circuit Court eliminated the entire 1998 legislation, saying the phrase “well-defined local neighborhood” was too broad. Since then, it has been unclear what guidelines for expansion credit unions should follow.

Give-and-take

Legislator Scott said he filed the new legislation in an effort to curb time-consuming and expensive litigation for banks and credit unions.

“By coming to this agreement, the banks are backing off of their lawsuits, it sets up a black-and-white territory where credit unions can expand, and everybody goes down the road loving each other,” Scott said.

While TelComm Credit Union President Don Ackerman said he’s not thrilled with the legislation, he said it’s a good compromise.

“There’s opportunity, but ... it’s a lot smaller opportunity than we had before,” Ackerman said. “The trade-off is that it’s probably going to do away with those lawsuits. That’s something that has been an ongoing saga for us. It got to the point where the director of the division of credit unions actually stopped approving expansions – it stymied potential growth.”

Ackerman is familiar with the legislation – and with litigation. Springfield-based TelComm is a party to a lawsuit due to a request in 2000 to expand TelComm’s geographic service area to the entire 417 area code.

If the law passes, it won’t change operations for TelComm, which has three locations in Springfield, one in Nixa and one in Republic.

Banks also would compromise in the new legislation, which states that banks can only file suit over a credit union’s expansion if the bank can show it would be directly harmed by that expansion.

Jerry Sage, executive director of the Missouri Independent Bankers Association, said setting clearer geographic guidelines allows community banks to compete more evenly with credit unions.

“We have no problem competing, especially with mom-and-pop credit unions who serve a particular group or company and serve those of modest means; we object to those who want to be a bank, act like a bank but not have to meet the same requirements,” Sage said. “We just feel there should be a limit, and we think this does a good job of defining those limits.”

Despite the smaller area for expansion, credit unions are generally in favor of the legislation, according to Peggy Nalls, senior vice president of public and legislative affairs for the Missouri Credit Union Association. That’s primarily because it clarifies the rules for credit unions and addresses credit union locations that have opened since 1998. Under the bill, credit unions that opened new offices between the enactment of the 1998 law and when it was struck down would be allowed to keep those offices open, even if they’re outside the boundaries defined in the new bill.

Scott said the bill also helps the state; several credit unions were considering dropping their state charters in favor of federal charters, which would have cost the state thousands in annual fees.