We cannot go home. We have changed. The credit union movement will never be the same. We have educated consumers and now they know about us and we are starting the beginning of a new march.
–Buck Levins, Feb. 26, 1998
By Frank J. Diekmann
It is a very rare moment in life when you actually realize you’re living right in a moment of an historic change. For credit unions, Feb. 25, 1998 was one of those moments. It’s a day that qualifies for “Where were you when…?” status, even if at the time most people were too shocked, angry or even fearful to realize what had just happened.
It was the “Day That Changed Everything,” as CUToday.info reported, and yet as credit unions head back to Washington for CUNA’s GAC two decades later, another thing has remained the same, as the banking industry has gotten particularly aggressive in recent weeks in attacking the credit union tax exemption.
What had happened, as I wrote some two decades ago, was the Supreme Court of the United States knocked some of the arrogance out of credit unions. Credit unions just knew they were the righteous apostles of cooperative finance. Credit unions just knew bankers were the wrongteus ones. And credit unions just knew they Supreme Court would give its blessing to all that when it ruled from on high. And then, credit unions suddenly discovered what they didn’t know.
The Sounds of Silence
On that Wednesday, Feb. 25th, a confident and buzzing crowd packed into the Washington Hilton’s oval-shaped ballroom was stunned into silence when it was announced the Supreme Court had just voted 5-4 to uphold a lower court decision that had found NCUA had erred in interpreting the Federal Credit Union Act by allowing more than one type of “group” to join a credit union.
The victory, the affirmation credit unions had simply assumed was their birthright hadn’t just vanished like a politician’s promise, it felt to many that the court ruling meant they had broken the law and were guilty of a crime.
The prospects in Congress for passage of legislation to update the FCU Act weren’t great at the time. Even after then Speaker of the House Newt Gingrich brought a roar of approval from the CUNA GAC crowd when he announced he would break with tradition and sign on as a co-sponsor of HR 1151, another congressman told his delegation that Newt Gingrich represents the sixth district in Georgia, not his district.
The Sound of Bankers Crowing
It didn’t help the banks were crowing over the ruling, with their only moral issue being whether or not to be magnanimous enough to allow CUs to keep the 15 million or so Americans who had joined under the expanded FOM interpretation—or demand they be kicked out. The bankers, incidentally, had some odd allies in a number of credit union CEOs who strongly objected to the expansions NCUA had approved and who were downright PO’d over having their FOMs “overlapped.”
Indeed, credit unions were so shaken that talk of the High Court was replaced with talk of a Higher Power. One person called GAC a “revival.” CUNA President Dan Mica quoted from the Book of Mark. Larry Blanchard referred to doing “God’s work.” (All of which seemed appropriate, since the ruling came down on Ash Wednesday.)
The implications of the ruling were potentially severe. “The banks are talking about taking themselves into the 21st-century and talking about taking us back to the 19th century,” said CUNA’s Gary Kohn.
Jim Guretzky, then the chairman of NAFCU, observed, “For the courts, this is a matter of law. For banks, it's a matter of profits. For credit unions, it's a matter of survival. And for consumers, it's a matter of choice.”
Ken Robinson, then the CEO of NAFCU, offered that “We used to think we were the 800-pound gorilla. Now we know we are the 98 pound weakling.”
A Little-Noticed Irony
The irony that cold February day was little noticed, but credit unions had found themselves with their backs to the wall only because 16 years earlier credit unions had had their backs to the wall. In the early 1980s then NCUA Chairman Ed Callahan saw a crumbling credit union landscape, as the economy struggled through a recession and many single-sponsor CUs either sank when those companies went down or found themselves foundering in the water with the shoreline nowhere in sight.
“The situation at NCUA was pretty bad. We had an insurance fund with no money in it–$200 million or so–and I could name a half-dozen credit unions that were far enough under water that liquidation would've wiped it out in a day,” recalled Callahan, who pointed to his hometown of Youngstown, Ohio where five steel mills had closed. “And that was at a time when those members needed the credit union more than ever.”
What NCUA did under Callahan was reinterpret a handful of words in the Federal Credit Union Act of 1934. Specifically, that membership in a federal credit union "shall be limited to groups having a common bond or occupation or association.” NCUA soon announced that federal credit union membership could include more than one group as long as members of each group shared a common bond.
It Started With One Community Banker
In 1990, a community banker in North Carolina filed suit against the then AT&T Family FCU, arguing the 150 groups it now served were not related to AT&T, nor were they family, arguing the CU was in violation of the FCU Act. On Oct. 6, 1997, with NCUA now the defendant, the Justice Dept. and the bankers’ lawyers argued before the Supreme Court over that one word: what did “groups” mean? Seven months later, the Court delivered its answer.
Under the leadership of the Campaign for Consumer Choice, credit unions spent the next six months on the largest, most aggressive and best-funded lobbying and public relations effort in the history of credit unions, all to get HR 1151, the Credit Union Membership Access Act, enacted by Congress. After some discussion of pushing HR 1151 into 1999, it eventually passed Congress in 1998 by a landslide vote (although it’s often forgotten the bill only got out of committee by one vote).
As credit unions pondered a new future in which they could serve just about everyone in the United States, some people paused to ponder what the brave new world might mean. In 1998 one CEO told me that if you take cooperation away and replace it with competition, “then you'll lose what makes the credit union movement unique.” Another one said if you go the way of competition, it's going to be the big guys that survive. He should have invested in Mergers Futures.
Back to the Future
There were also fears expressed by more than a few people that if credit unions really could serve every consumer just like banks, then they would run a much greater risk of being taxed just like banks. And now here we are as credit unions head back to GAC in 2018 with bankers’ groups from across the country joining with at least one U.S. senator in threatening that very thing.
Twenty years later, Mr. Levins has proven to be prescient: Credit unions have changed, and the movement has never been the same.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info or @FrankCUToday.