
DATE: Sunday, August 17, 1997               TAG: 9708160572

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: TOM SHEAN, Staff Writer 

                                            LENGTH:  120 lines

CREDIT UN;ION CEO SEES CASE AS A WATERSHED

Marc Shaefer jokes about having met plenty of bankers in his previous job.

Before taking over as president and chief executive officer of the AT&T Family Federal Credit Union in Winston-Salem, N.C., in 1995, Schaefer spent nine years as CEO of the credit union for employees of the Federal Deposit Insurance Corp. The FDIC regulates thousands of the nation's banks.

Today, Schaefer splits his time between running AT&T Family and waging a long-running battle with bankers. His credit union is a party in a case to be heard by the Supreme Court in October.

For decades, credit unions enabled working-class households to pool their savings and make small loans to other members. Each credit union served the employees of a specific factory, church or military facility.

That arrangement began to change in 1982, when the National Credit Union Administration allowed federally chartered credit unions to expand their fields of membership. Some credit unions grew quickly by taking in thousands of employees at unrelated companies.

These organizations also offered an array of financial services, including first mortgages, credit cards and automated teller machines. Banks throughout the country complained that larger credit unions were becoming more bank-like but did not have to pay taxes.

AT&T Family Federal Credit Union was one of several credit unions sued by banks seeking to restrict the eligibility for credit-union membership. It also became a party in the case to be heard by the Supreme Court.

Schaefer was in Chesapeake last Thursday to address a gathering of local credit-union officers and employees. Before the meeting, he spoke to staff writer Tom Shean about the dispute between credit unions and banks.

How important is the case that the Supreme Court is scheduled to hear?

It's a watershed for the direction of credit unions.

What's likely to happen to federally chartered credit unions if the court rules against the National Credit Union Administration and AT&T Family Federal Credit Union?

One option would be to convert to a state-chartered credit union. Another would be to convert to a community charter and serve a designated geographic area. Another would be to become a mutual savings bank.

What's wrong with becoming a mutual savings bank?

With a mutual savings bank structure there's an inexorable push for profit. Right now, we use our profits to provide lower loan rates, lower fees on our services.

Would a small credit union that only serves a single employer group be affected if the court rules against credit union regulators and AT&T Family?

If the employer downsizes or closes, there would be no options for that credit union. It could not diversify its membership.

Banks have contended that credit-union regulatorsand large credit unions have ignored the legislation defining eligibilty for credit-union membership. What's your interpretation of the ``common bond'' requirement for members?

The 1934 credit union act was never intended to delineate banks from credit unions. The common bond was a way to help credit unions get started. The banks want us to go back to 1934, while they're marching ahead and selling insurance and securities. We should be allowed to provide services in a modern way.

How large is AT&T Family Federal Credit Union?

We have 163,000 members and serve 326 employer groups.

Credit unions like yours provide many of the services that banks do. Why shouldn't banks be worried about losing business to AT&T Family?

Twenty-five percent of our members are furniture workers and textile workers. Over 60 percent of these members earn less than $20,000 a year. In Asheboro, N.C., where we have a branch, there are 13 different finance companies, twocheck-cashing stores and two pawn shops. What happens if we have to leave and close that branch? The reality is that those members won't go to the bank there. They'll go to the finance companies, where they'll pay 27 or 28 percent for a car loan.

With its range of services, AT&T Family sounds like a bank. What distinguishes a large credit union from a bank?

We don't have to pay a return to stockholders. Because of our non-profit structure, we don't have to make money on every transaction. Banks, however, have recognized that fee income is an important source of profit. We own 20 automated teller machines and don't charge for using them. Many banks do. Their ATM surcharges demonstrate the philosophical differences between banks and credit unions.

Banks also have complained that credit unions enjoy an unfair advantage because your profits aren't taxed. Why shouldn't credit unions pay taxes on what they earn?

We could pay taxes, but the result would be a fundamental change in the way we operate. There are estimates that the Treasury could collect up to $1 billion annually, but I would argue that we give away a lot more than $1 billion a year in services. If you tax credit unions, you will change their structure and they will not be the same purveyors of low-cost service. ILLUSTRATION: Color photo

NHAT MEYER, The Virginian-Pilot

Marc Schaefer is president and CEO of AT&T Family Federal Credit

Union of Winston-Salem, N.C., which was sued by banks in a case

scheduled in October to be heard by the Supreme Court.

Graphic

CHRONOLOGY

These events led up to the Supreme Court decision to hear the case:

1982: National Credit Union Administration allows federally

chartered credit unions to take in new members even if they have no

common bond with existing members.

1989: A handful of North Carolina banks and the American Bankers

Association sue the NCUA for allowing AT&T Family Credit Union of