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Banks turn to Nebraska lawmakers in fight with credit unions

February 24, 2019

LINCOLN, Neb. (AP) — A national fight between for-profit banks and nonprofit credit unions is spilling into Nebraska, and state lawmakers could get caught in the middle.

Nebraska’s banking industry is supporting a bill this year that would require state regulators to notify them anytime a credit union seeks approval to expand its membership, giving bankers the opportunity to challenge it in a public hearing.

“The department would basically have to send a certified letter to our competitors,” said Linda Carter, president of the Lincoln-based MembersOwn Credit Union. “I can’t quite understand why we want to add that extra layer of government.”

The bill comes as several Nebraska-based credit unions try to move into parts of the state dominated by banks, following a similar trend nationwide that has pitted banks against the nonprofit lenders.

Nebraska requires state-chartered credit unions to get state approval before they can expand their “field of membership” — the group of people who are eligible to become members.

“Credit unions provide competition to for-profit banks, and where there’s competition, consumers benefit,” said Brandon Luetkenhaus, chief advocacy officer for the Nebraska Credit Union League. “This is an attempt by the bankers’ association to build barriers to business. They’re trying to insert themselves into the regulatory process.”

Credit unions offer the same basic products as banks but operate as nonprofit cooperatives, with a governing board elected by their members. They frequently boast about offering better customer service and lower fees than banks. Banks are for-profit businesses, owned by shareholders, and often have more locations than credit unions, but they don’t get the same tax breaks.

Carter said credit unions already face substantial barriers when they try to expand, and the bill would impose even more. MembersOwn currently serves people who live in or have a connection to Lancaster or Gage counties, but it’s looking to expand into 11 surrounding counties.

Banks counter that credit unions get an unfair advantage because their nonprofit status lets them avoid federal income taxes. Unlike other nonprofits, credit unions do pay state and local taxes.

“Our banks don’t back away from competition,” said Richard Baier, president of the Nebraska Bankers Association. “We compete with each other all the time. We just don’t like having to compete with someone who gets subsidies we don’t.”

Banks far outnumber credit unions in Nebraska and held about 95 percent of the state’s market share in 2017, according to the Credit Union National Association. The state’s banks topped $1 billion in combined net income in 2018, the first time they’ve hit that milestone, according to data released last week from the Federal Deposit Insurance Corp.

Nebraska has 155 state-chartered banks and 12 state-chartered credit unions, according to the Department of Banking and Finance. Another 17 banks and 48 credit unions are federally chartered.

A similar dispute between banks and credit union has erupted in Iowa. Last week, the state’s top banking lobbyists called on lawmakers to impose the same tax on credit unions that banks pay and “end credit unions’ free ride.” A bill last year in the Iowa Legislature threatened credit unions with a major tax increase, but the measure stalled.

One measure that did pass bars Iowa-based credit unions from using the names of state universities in their titles — a shot at the University of Iowa Community Credit Union, the state’s largest credit union. Iowa bankers argued that the credit union unfairly competes by using the name of the university, even though it has no affiliation with the school.

In August, Nebraska’s SAC Federal Credit Union changed its name to Cobalt Credit Union and announced it would switch from a federal charter to an Iowa state charter — a move that lets it expand into Lancaster and Dodge counties in Nebraska. The expansion wasn’t allowed under the credit union’s federal charter, but Iowa’s charter rules are more relaxed.

Cobalt Credit Union officials said they changed the name because many people falsely believe that membership is limited to military personnel. It was formed in 1946 to serve Strategic Air Command. Baier, of the bankers association, said the move was designed to gain market share in Nebraska.

Baier said his group proposed the Nebraska bill out of concern that banks could miss the existing public notices that are buried in local newspapers when a credit union wants to expand its membership field.

He said his group doesn’t mind smaller, niche credit unions, but is concerned that many of them are growing rapidly and acting like large banks when their original purpose was to provide basic financial services for people of ordinary means.

“Credit unions nationally and in Nebraska are engaging in many practices to grow their membership and geographic footprints,” the Nebraska Bankers Association said in its August newsletter. “These practices and plans for credit union expansion are indeed a growing concern for (the banking association’s) members.”

Sen. Rob Clements, an Elmwood banker, said he introduced the bill because credit unions are branching out far beyond their traditional purpose of serving specific groups of people, such as government employees or residents of a single town.

“The bankers would just like to be informed when credit unions propose modifications to expand their territory,” he said.

Nebraska Department of Banking and Finance Director Mark Quandahl said his agency hasn’t yet decided whether it will take a position on the bill. A hearing is set for Tuesday before the Legislature’s Banking, Commerce and Insurance Committee.

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