The war drums were sounding loudly at the Utah Bankers Association's annual convention in Sun Valley, Idaho, last week, rallying the state's banking community to do battle against an increasingly fearsome competitor: the state's 150 credit unions.
But the credit unions heard the drums, too, and they aren't about to run from the fight."We're not taking the threat lightly, believe me, nor do we think our customers take it lightly," said Scott G. Earl, president of the Utah League of Credit Unions.
"The bankers are a powerful, influential group. They definitely have our attention. In our minds, they are threatening our existence and we will fight back with as much as it takes . . . to continue operating."
Sounds like war all right.
What's all the fuss about? For several years Utah bankers have been among the leaders nationally, through lobbying and lawsuits, to "level the playing field" in their competition for business against the credit unions.
The field is unlevel, they contend, because credit unions don't pay taxes and are not subject to the same regulations as banks, particularly the Community Reinvestment Act (CRA) which requires banks to return a portion of their profits to the communities in which they do business.
In past years, the credit union problem has been a side issue at the UBA convention; this year it seemed to be the only issue. In what may be a first for the conservative bankers, they left Sun Valley with their cars plastered with bumper stickers proclaiming: "Why don't credit unions pay taxes? Call Congress!"
And when you call, said outgoing UBA Chairman W. David Hemingway, ask the legislators why they don't try balancing the federal budget by taxing the "corporate welfare queens" known as credit unions.
The credit union league's Earl appreciates a good sound bite as much as the next person, but he points out that the credit union tax exemption does not benefit corporations, it benefits consumers.
"If the credit union tax exemption were gone tomorrow, consumers would lose," he said.
Credit unions are tax exempt and banks are not, said Earl, because they are structurally different. "Banks exist to make a profit . . . (but) credit unions have a higher social mission. A credit union is a cooperative, non-profit association (created) to encourage thrift among its members and to create sources of credit at fair and reasonable rates of interest . . ."
Banks, conversely, exist to make a profit for their shareholders. So while a bank tax exemption would be used to increase profits of shareholders, said Earl, the credit union exemption is used to better serve all the members. "We pass the exemption on to the consumer; that's why our rates and fees are better than banks across the board."
And thanks to state law, said Earl, "Anyone in Utah can now benefit by belonging to a credit union. Bankers believe it is wrong to offer this benefit to all Utahns. Why?"
Because, says UBA President Lawrence Alder, credit unions were created to serve people with a "common bond," such as employment or a defined community, such as a single county. Since that bond no longer exists for the larger credit unions, Alder says Congress ought to do to them what it did to the savings and loans and mutual savings banks: Remove their tax exempt status.
"Now there's a great model," rebuts Earl, "have Congress, in effect, put credit unions out of business the same way they did the S&Ls. Who are they trying to kid; this push is about banker greed, nothing else. They want credit unions out of the marketplace so they can price at will and increase profits."
As for being subject to the Community Reinvestment Act, Earl contends the law was enacted "because bankers did little to reinvest in their communities; Credit unions, on the other hand, are their communities. They won't be taken over by bigger fish from out of state, they belong to their members . . . "
As for the bankers claims that credit unions are "eating our lunch," Earl says his data show that bank assets are growing at a faster rate than the assets of Utah credit unions. "As a percent of total assets in Utah, in 1993 banks controlled 78.6 percent, while credit unions had 16.4 percent. At year-end 1995, banks controlled 81.9 percent of total assets and credit unions had dropped to 15.5."
Contrary to the bankers' claims, said Earl, "Utah banks are growing significantly more rapidly than Utah credit unions and more rapidly than the national averages for banks."
As for the "powerful credit union lobby" in Washington D.C., that the bankers claim is preventing the playing field from being leveled, Earl contends it is not paid lobbyists as much as ordinary members who are willing to fight for their credit unions.
Surprisingly, the number of credit unions in Utah has declined over the past 18 years, from a peak of 368 in 1978 to 150 today - but those 150 have far more assets today than the 368 did in 1978.
Earl asks this provocative question of the bankers: "If what we have is so wonderful, why aren't banks converting to credit union charters in droves?"
Answering his own question, Earl says banks won't convert to credit unions because CUs have no stock or stock options, no trust powers, are severely restricted in the types of commerical banking they can do, have directors elected by the customers, and they would have to serve all customers, regardless of how small ther accounts - a costly way to do business.
"Try to get a $300 loan from a bank sometime," said Earl.