A thoughtful reader from the heartland pointed out to me that while grandstanding New "Yawkers" may be making grand gestures to draw attention to the fact that credit unions are (gasp) tax exempt competitors of banks, slow-paced Kansans are taking a more deliberate and, perhaps, more ominous approach. Ominous, that is, if you're a credit union in Kansas.
The 2007 legislative session is nearing its end. But the year's key policy debate appears just to be starting for the state's credit unions.
The chairwoman of the Senate Financial Institutions and Insurance Committee says she plans to ask legislative leaders to create a special committee later this spring to study credit unions' "fields of membership."
A 2006 study by the Legislative Division of Post Audit said the
Kansas Department of Credit Unions had been too liberal in its
application of the state's law regarding membership for credit unions.
The results, the study said, are credit unions that serve too broad a
range of consumers.
Sen. Ruth Teichman, R-Stafford, agrees.
"They've overstepped," says Teichman, a banker and leader of the financial institutions committee. "It appears to me they are violating the law."
In the end, the Kansas Bankers Association -- long a competitor of the state's credit unions -- asked for a special legislative committee to study the issue. The Senate committee agreed earlier this year. Teichman says she plans to make the request of legislative leaders, who are expected to comply.
[...]
The bankers association says credit unions have left their
traditional roles of serving low- and moderate-income Kansans through
what state law calls a "common bond" of membership, such as through an
employer or church.
Many credit unions -- the post-audit study declared -- don't have a single "common bond," such as serving only teachers or union mechanics. Many serve a variety of employees from a variety of industries.
Sounds familiar, eh?
Credit Union regulators and trade groups disagree, to no one's surprise.
The Kansas Department of Credit Unions says of the state's 90 credit unions, 43 of them have a single common bond. But 47 of them have multiple common bonds.
But John Smith, the department administrator, says the KDCU has
applied the law the same since it was created by the state banking
commission in 1968. In fact, the department says credit unions have
been chartered with multiple common bonds since the 1950s.
"That has always been the practice," Smith says. "We have a real mixture of fields of membership. A lot of that continues today."
Many credit unions have expanded their fields of membership through mergers that have helped credit unions remain viable, Smith says. He says if the Legislature decides the law hasn't been followed, it should alter the law to reflect the department's practices.
"I don't think you could unwind what's been done," he says.
Yet, that may happen. I assume that the "special committee" will consider that factor, among others.
Credit union supporters point out that credit unions only control about 5% of the market. That's 5% too 
much for bankers, who believe that if credit unions are going to stretch "common bond" boundaries to the limits of elasticity, and compete with commercial banks for the same base of depositors and borrowers, they ought to pay the same taxes. Anyone who shops for rates realizes that credit unions offer better rates on deposits and loans than their local commercial banking competitors, due to the tax free nature of their income. It's a tremendous competitive advantage.
I speak from personal experience. My wife joined a local credit union, open to residents of the state of Texas (how's that for a narrow common bond), because it offered the best interest rate on an IRA certificate of deposit with the term she desired. I would have called her a traitor to my cause, but the fringe benefits our relationship then would have been endangered and--with all due respect to commercial banks--I'm a weak man when it comes to fringe benefits.
At any rate, while a bold statement made solely to gain publicity may make the loudest public splash, the beneath the waves, "silent running" of a special committee might be a more productive method to craft a legislative "fix" to a problem that continues to irk community banks.
We'll keep our eyes on the land of waving wheat to see how it goes. The fact that the fight against credit unions is being led by the chair of the Financial Institutions and Insurance Committee of the Kansas Senate, a woman described by her web page as a "banker/farmer," means that credit unions in Kansas won't take the threat lightly.
