DATE: Sunday, September 21, 1997            TAG: 9709230458

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

                                            LENGTH:  312 lines

CREDIT UNIONS BANK ON GROWTHTHEY WANT TO WIDEN MEMBERSHIP ELIGIBILITY BEYOND TRADITIONAL ``COMMON BONDS,'' BUT BANKS ARGUE THAT WOULD CREATE UNFAIR COMPETITION.

Stickers on the front door promote MasterCard and VISA credit cards.

A banner in the lobby announces the availability of home loans. Elsewhere, placards and brochures tout auto loans and traveler's checks.

At first glance, the one-story building near Portsmouth City Hall could pass for a bank. It's not.

This is the main office of Guardian Federal Credit Union, a financial-services organization with 8,760 members and five offices.

Half of Guardian's members come from the Coast Guard. The balance come from three dozen other groups, including the federal government, two law firms, a church, a Portsmouth chemical plant and the Norfolk Waterside Marriott hotel.

Because they provide an array of financial services and offer membership to much of the public, some credit unions are increasingly seen by banks as serious competitors.

The rules for membership eligibility have been interpreted so broadly that almost anyone can join a credit union, bankers complain.

After battling over membership-eligibility rules in lower courts for several years, credit unions and bankers will take their arguments to the U.S. Supreme Court on Oct. 6. The cases involve a large Winston-Salem, N.C., credit union, AT&T Family Federal Credit Union, and a handful of small North Carolina banks.

For some expansion-minded credit unions, the stakes are high. An unfavorable ruling would sharply curb their ability to add new members. That, in turn, would limit their ability to open additional branches or offer new services.

Guardian probably could weather those limits, said Chris Anuswith, its president. But fewer people would have access to low-cost financial services at credit unions, he said.

That would be especially true for employees of businesses too small to support their own credit unions, Anuswith said.

The dispute between credit unions and banks takes place amid robust earnings for the nation's banks and steadily rising fees for basic banking services.

Both of those characteristics speak to the differences between banks and credit unions, said Anuswith, who worked for a large Washington, D.C., savings bank before moving to Guardian.

``We have a philosophy that focuses on service to people,'' he said. ``At a bank, they are going to focus on profits, rightfully so. They have to produce a return on their shareholders' investment.''

Credit unions routinely win high marks from consumer and banking publications for the lower cost of their services. For example, most of the credit unions offering credit cards don't impose annual fees, and most with automated teller machines don't have a surcharge for making cash withdrawals.

``Cost containment is critical for a credit union,'' said Anuswith. ``If we pass on a fee, we pass on only enough to cover our expenses.''

Bankers, however, argue that credit unions can afford to hold down their fees and service charges because they pay no taxes on their earnings.

``What causes heartburn among bankers is having to compete with those credit unions that behave like a bank,'' said Walter C. Ayers, executive vice president of the Virginia Bankers Association. ``Those that do should be taxed like a bank.''

Anuswith and other credit-union managers aren't waiting around to hear how the Supreme Court decides the membership-eligibility issue. Since April, managers and members have been writing letters and lobbying for a congressional measure that would revise the membership-eligibility rules.

The bill, introduced in March, would amend the Federal Credit Union Act of 1934 by allowing federally chartered credit unions to take in unrelated groups so long as the members of each group shared a common bond with each other.

With help from two trade associations, the Credit Union National Association and the National Association of Federal Credit Unions, managers are waging a ``Credit Union Campaign for Consumer Choice'' through newspaper and broadcast advertising and other means.

So far, more than 100 members of Congress have signed up as co-sponsors for the bill, The Credit Union Membership Access Act.

However, credit unions have yet to win any support from Virginia's congressional delegation. The members he has spoken with said they will wait for the Supreme Court ruling before taking stands on the House bill, Anuswith said.

The Supreme Court isn't the only battleground for credit unions and banks. The debate over membership eligibility has been heating up in Virginia.

Last month, the Virginia Bankers Association petitioned the State Corporation Commission to restrict the ability of Virginia-chartered credit unions to expand their fields of membership.

In the process of taking in diverse employee groups, some of Virginia's credit unions have violated the requirement that members share a common bond, said Ayers of the bankers' association.

Credit unions, like other cooperatives, are non-profit organizations owned by their members. Many still operate the way they did a generation ago: Using volunteer help, they gather deposits from members to make auto loans and personal loans to fellow members.

Partly because of their lower costs, credit unions can pay higher interest rates on members' savings and charge lower rates for their loans.

But demands from members to provide greater convenience and offer additional services have prompted Guardian and others to add branches. Over the years, several credit unions have added credit cards and home loans to their mix of services.

In Virginia and nationwide, the number of credit unions has been steadily shrinking, largely because of mergers. However, credit-union membership continues to grow along with assets, loans and deposits.

What makes some of that growth possible is a broader interpretation of the 1934 law that limited membership in a credit union to individuals who shared a ``common bond. '' For years, membership in a particular credit union was restricted to those who worked at the same factory, were stationed at the same military installation or belonged to the same church.

The limits on eligibility were broadened in 1982 when the futures of some credit unions were threatened by a wave of plant closings. The National Credit Union Administration allowed credit unions to expand their fields of membership by taking in members from unaffiliated groups.

One Hampton Roads credit union that has been aggressive at doing that is Chartway Federal Credit Union in Virginia Beach. It was organized in 1959 to serve members of the armed forces and employees who worked at the Norfolk Naval Air Station.

But it wouldn't have survived had it stuck to its original field of membership because the aviation-repair facility that accounted for many of its members eventually closed, said Ronald L. Burniske, Chartway's president and chief executive.

With more than 500 different groups in its field of membership, what had been the Naval Air Federal Credit Union changed its name to Chartway last year to reflect the diverse membership, Burniske said.

Another large credit union in the region reached beyond its original source of members last year. Because of the shrinking workforce at Newport News Shipbuilding, the yard's credit union was faced with a dwindling pool of potential members, said George Dudley, the credit union's president.

So Newport News Shipbuilding Employees' Credit Union, the third largest in Hampton Roads, expanded its membership field to the Gateway 2000 computer-assembly plant in Hampton.

With 62,000 members, the 400 additional members from Gateway's workforce account for only a tiny percent of its total, Dudley said. But the credit union has to find ways to maintain a stable size if it expects to deliver the level of service its members seek, he said.

Credit-union managers expressed surprise at the vehemence of banking industry opposition to their expansion efforts, given the rapid restructuring of commercial banking. The landscape already has been reshaped by banks' entry into insurance, mutual-fund management, investment banking and brokerage services.

For credit unions to fit into this new financial-services arena will require broader accessibility to members, these managers insisted.

``We, too, need to adapt to the times,'' Anuswith said. ILLUSTRATION: Color photo

BILL TIERNAN/The Virginian-Pilot

Chris Anuswith's Guardian Federal Credit Union...

Graphics

JOHN CORBITT/The Virginian-Pilot

THE NUMBER OF CREDIT UNIONS IN VIRGINIA HAS BEEN DECLINING...

...BUT CREDIT UNION MEMBERSHIP REMAINS STRONG...

...AND ASSETS CONTINUE TO GROW.

SOURCE: Virginia Credit Union League

[For complete graphic, please see microfilm]

HISTORY

The credit union movement started in Germany during the 19th

century. Members of these financial cooperatives pooled their

savings and made loans to each other. Early in this century, credit

unions sprang up in Canada and then in New England. In most cases,

they were organized by people who shared a common bond, such as

working at a particular factory or belonging to a particular church.

MEMBERSHIP BROADENED

In 1934, Congress provided a system for chartering federal credit

unions and defined the membership rules. When a wave of plant

closings in the early 1980s threatened the future of several large

credit unions, federal regulators began to loosen the restrictions

on eligibility for membership.

SUPREME COURT CASE

During the past decade, banks in several states have challenged

the way federal regulators allowed credit unions to extend their

fields of membership beyond their core groups. After a series of

lower-court rulings involving a large North Carolina credit union,

the Supreme Court agreed to hear the case involving membership rules

for federally chartered credit unions. The arguments are due to

begin in early October.

OBJECTIONS IN VIRGINIA

The Virginia Bankers Association has asked state regulators to

limit the eligibility for membership in Virginia's state-chartered

credit unions. The bankers' association also expressed concern about

the conversions of three credit unions that served specific employer

groups in Charlottesville, Martinsville and Waynesboro to

community-chartered credit unions that serve residents of entire

cities and counties.

TOP 50 CREDIT UNIONS IN HAMPTON ROADS

These credit unions are the largest with offices in the region.

Figures are for the period ended Dec. 31, 1996. Compiled from

financial data reported to the National Credit Union Administration,

the governing body for credit unions.

RATINGS:

*****: Federally insured with an adjusted capital ratio (CR)

exceeding 9%. (Capital ratio is the regulatory capital as a

percentage of assets.)

****: Federally insured with an adjusted CR between 6% and 9%

***: Federally insured with an adjusted CR between 3% and 6%

CREDIT UNION HQ ASSETS CAPITAL 1996 INCOME RATING

Navy

Federal Vienna $8.92 bil $1.01 bil $115.54 million *****

Langley

Federal Hampton $552.93 mil $77.7 mil $8.09 mil *****

Newport News

Shipbuilding

Employees Newport News $504.47 mil $81.31 mil $5.85 mil *****

Chartway Federal Va. Beach $500.27 mil $50.15 mil $4.43 mil ****

First Advantage

Federal Newport News $203.18 mil $18.9 mil $2.11 mil ****

Amphibious Base

Naval Base Federal Va. Beach $165.13 mil $13.59 mil $852,000 ****

Member One

Federal Roanoke $106.5 mil $8.5 mil $885,000 ****

Bronco Federal Franklin $72.32 mil $6.72 mil $606,000 ****

NAE Federal Chesapeake $61.91 mil $7.2 million $1.35 million

*****

Navy Yard Portsmouth $61.61 mil $6.27 mil $631,000 *****

Atlantic Fleet

Federal Norfolk $59.14 mil $5.67 mil $537,000 ****

Virginia Beach

Municipal

Employees

Federal Va. Beach $52.95 mil $5.67 mil $366,000 *****

Norfolk Naval

Supply Center

Federal Norfolk $51.26 mil $4.86 mil $365,000 ****

Guardian

Federal Portsmouth $29.8 mil $2.09 mil $254,000 ****

Virginia

Educators Newport News $28.79 mil $4.29 million $288,000 *****

Navy PWC

Norva Federal Va. Beach $26.84 mil $2.82 mil $231,000 *****

Newport News

Municipal

Employees Newport News $25.75 mil $2.29 mil $321,000 ****

Virginia Beach

Schools

Federal Va. Beach $25.64 million $2.24 mil $382,000 ****

NWS Federal Yorktown $25.2 mil $2.11 mil $34,000 ****

Tidewater Telephone

Employees Va. Beach $22.05 mil $2.5 mil $185,000 *****

Fort Monroe Fort Monroe $17.7 mil $2.52 mil $124,000 *****

Hampton Roads

Educators Hampton $15.21 mil $1.64 mil $27,000 *****

Norfolk Municipal

Employees

Federal Norfolk $14.35 mil $1.56 mil $179,000 *****

Norfolk Fire

Department

Federal Norfolk $12.05 mil $774,000 $123,000 ***

Old Dominion

University Norfolk $11.37 mil $1.18 mil $423,000 *****

Tidewater Dominion

Employees

Federal Norfolk $7.39 mil $834,000 $78,000 *****

St. Matthews

Federal Va. Beach $6.9 mil $744,000 $65,000 *****

Prime Care

Inc. Norfolk $6.27 mil $553,000 ($6,000) ****

DePaul Federal Norfolk $6.24 mil $689,000 $132,000 *****

Virginia Beach

Postal Federal Va. Beach $5.81 mil $341,000 $3,000 ***

Port of Hampton

Roads ILA

Federal Norfolk $5.71 mil $1.03 mil $123,000 *****

Chesapeake Public

School Employees Chesapeake $5.61 mil $645,000 $64,000 *****

Hampton VA

Federal Hampton $5.4 mil $766,000 $107,000 *****

Norfolk, Va.,

Postal Norfolk $5.03 mil $1.02 mil $63,000 *****

Norfolk Teachers

Association

Federal Norfolk $4.69 million $847,000 $94,000 *****

Chessie-Newport

News Newport News $4.69 mil $502,000 $40,000 ****

Hampton Roads

Postal Newport News $4.67 mil $365,000 $53,000 ****

PFD

Firefighters Portsmouth $4.63 mil $638,000 $66,000 *****

Hampton City

Employees Hampton $4.56 mil $632,000 ($14,000) *****

Naval

Hospital Portsmouth $4.44 mil $760,000 $25,000 *****

Fort Norfolk

Federal Norfolk $4.1 mil $692,000 $61,000 *****

Metropolitan Church

Federal Suffolk $3.95 mil $793,000 $68,000 *****

Riverside Health

System

Employees Newport News $3.9 mil $576,000 $87,000 *****

Nansemond Suffolk $3.54 mil $479,000 ($34,000) ***

Chesapeake City

Employees Chesapeake $3.14 mil $411,000 $23,000 *****

Norshipco

Federal Norfolk $3.07 mil $803,000 $32,000 *****

Beltline

Employees Portsmouth $2.75 mil $270,000 $11,000 ****

Portsmouth, Va.,

City Employees

Federal Portsmouth $2.5 mil $438,000 $60,000 *****

Norfolk Schools

Federal Norfolk $2.37 mil $223,000 $12,000 ****

Maryview Hospital

Employees

Federal Portsmouth $2.18 mil $256,000 $21,000 *****

SOURCE: Bauer Financial Reports Inc., Coral Gables, Fla. KEYWORDS: CREDIT UNIONS HISTORY STATISTICS

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