By JASON BOOTH
The U.S. Supreme Court ruling limiting the type of customers that credit unions can accept is expected to have a big impact in Los Angeles, where some of the nation’s biggest credit unions are located.
The two biggest L.A.-area credit unions, the Hughes Aircraft Employee Credit Union and the Lockheed Federal Credit Union, are among those that have been forced to look elsewhere for members because their parent companies have either moved out of town or were acquired by other companies.
But the Feb. 25 ruling by the Supreme Court in a case brought by the banking industry requires that credit unions limit their new members to individuals with a “common bond” of work or community.
“The ruling would restrict us from growing with the changing economy. Most of the new business is in small companies,” said Kevin Foster-Keddy, president of the Hughes credit union, which has $1.7 billion in assets and 170,000 members.
Hughes has gone far afield to find more customers. Among its newest members is newspaper group Gannet Co., based in Arlington, Va.
A similar problem faces Lockheed, which has 97,000 members and assets of about $1 billion.
“Following the ruling, the pool of new customers from which we can draw has been drastically reduced,” said Andrea Carpenter, vice president of marketing. “But we feel we can continue to grow with members from our core industry group.”
Credit union officials are counting on Congress to adopt legislation that will overturn the court’s decision. But they will face a fight from bankers.
Credit unions are non-profit organizations and receive a federal tax subsidy. Bankers say the tax benefits give credit unions an unfair advantage in the marketplace because they allow them to offer higher interest rates for deposits and lower loan rates.
“A tax benefit to any institution that essentially does the same thing we do is unfair,” said John Getzelman, president of Pasadena-based Community Bank.
He pointed out that a typical small bank will pay around 40 percent of its income in taxes.
“Credit unions have gone far beyond their original concept. To argue that their customers have a common bond takes a vast extension of logic,” he said.
L.A. community bankers argue that credit unions that have expanded beyond their original customer base should have to both pay taxes and receive the same regulatory scrutiny as banks.
“If there are going to play in my sandbox they should be playing by the rules,” said Aubrey Austin, president of Santa Monica Bank.
The ruling will also make it difficult for the increasing number of small businesses in Los Angeles to become members of a credit union. A company typically needs 2,000 employees or more before it can form a viable credit union.
“It is sad because these are not the type of companies Wells Fargo or Bank of America are really interested in, but credit unions can service these people properly,” said Foster-Keddy.
Charles Bruen, president of First Entertainment Federal Credit Union, said his firm had just purchased a new ATM machine tax-free to install at Warner Bros.
“If we had to pay the 8.25 percent sales tax, that cost would have been passed onto our customers,” he said.