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State bill pursues compromise between banks, credit unions

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by Karen E. Culp

SBJ Staff

A bill that would change the way credit unions do business in Missouri is now in the state Senate.

House Bill 1323 is the result of a compromise between banking and credit union groups, said Mike Williamson, president of Empire Bank and chair of the Missouri Bankers' Association.

"This has been a very contentious issue, and we have reached a compromise that both sides can live with, but there are still some issues that need to be examined," Williamson said.

The new bill has two signficant components. It creates a Credit Union Commission in the state's Division of Credit Unions. The commission will advise the director of the Division of Credit Unions and may approve or disapprove regulations proposed by the director, and hear and determine appeals of the director's orders.

The second major tenet of the bill has to do with credit union membership. Under this bill, the credit union will have to decide whether it will expand its membership by adding geographic areas to its service area or employee groups.

"The intent of this bill was to allow credit unions to continue doing what they have always done. This bill requires credit unions to decide whether they're going to serve an increased number of selected employee groups or whether they're going to expand geographically," said Steve Pierson, president of the Postal Federal Community Credit Union in Springfield.

Currently, credit unions can expand either by adding employee groups or by expanding the geographic areas they serve, Pierson said.

Both Pierson and Darrell Bahr, vice-president for communications and education for the Missouri Credit Union System, said that the new legislation should prevent future lawsuits between credit unions and banks.

"We've had a situation of 19 different lawsuits in 12 states with banks suing over field of membership, and that takes the credit unions' memberships' money. With this bill, we hope to make explicit the ways credit unions can develop their membership and to deter any future lawsuits such as those," Bahr said.

Most Missouri credit unions are state-chartered rather than federally chartered, Pierson said. Therefore, legislation currently being worked out in Congress to regulate federally chartered credit unions will not be as useful in this state. All of the credit unions in Springfield operate under state charters, Pierson said.

Nationally, credit unions represent 2 percent of total deposits, but in Missouri, they represent 4 percent of total deposits, Bahr said. Though credit unions are regulated by the Division of Credit Unions, bankers like Williamson and Tom Fowler, president of State Bank of Southwest Missouri, say they are not monitored as heavily as are banks.

"If credit unions want to be like banks, they can play by the same rules. If they are going to compete, they ought to pay the same taxes as banks," Fowler said.

Three years after legislation was passed to create credit unions, Congress passed a law giving them a not-for-profit designation that would exempt credit unions from paying federal corporate tax, Bahr said. The credit union act was passed in 1934; the tax exemption in 1937.

Williamson agreed that the credit unions should be "subject to the same taxes banks are if they are going to be competing with us for customers," he said.

Though the credit unions receive the federal exemption, they do pay taxes, Bahr said.

"Credit unions do pay taxes: they pay real estate taxes, franchise taxes to the state and a whole host of other taxes depending on where they're located and how they're operating. Just because they're exempt from the federal corporate tax does not mean they are tax-free," Bahr said.

Williamson said that credit unions should also be subject to the same regulations that banks are under the Missouri Division of Finance and the Federal Deposit Insurance Corporation.

"If they were taxed the same way and were subject to the same rules, then it would be a more level playing field. Right now, credit unions are competing with banks for customers, but the rules aren't the same for both sides," Williamson said.

Both Bahr and Pierson said credit unions are sufficiently regulated and have to maintain deposit insurance just as banks do.

"Credit unions and banks are different; they do business differently. A credit union is not a bank and therefore should not be subject to banking rules. Credit unions are subject to their own rules," Bahr said.

The tax-exempt question is a federal issue and will have to be changed on that level, Williamson said.

House Bill 1323 is now on the state Senate's calendar and will probably be taken up before the session ends, said Sen. Roseann Bentley. Bentley said she thinks the bill represents a compromise between banks and credit unions and that she intends to vote for it.

"It's been a volatile, controversial issue. Credit unions do provide a valuable service, but they do need a little more regulation, and some things need to be spelled out," Bentley said.

"This bill is a good deal for credit unions. It helps protect members and it does not enhance the power of credit unions. It spells out policy for governing credit unions," Bahr said.

The bill also places a cap on the size of employee groups that can be added to an existing credit union. The added employee group must have fewer than 3,000 members or has to prove that it cannot form a credit union on its own because of extenuating circumstances, Bahr said.

INSET CAPTION:

'It's been a volatile, controversial issue.'

Sen. Roseann Bentley

30th District

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