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Ralph Nader > Special Features > ELIMINATING COMPETITION

From The Nader Letter

Oct./Nov. 1997

THE NATION’S BANKING industry, enjoying year after year of record profits and growing political and economic dominance, has a simple corporate strategy about competition — “don’t meet it, just eliminate it.”

The industry’s current legal battle against the smallest segment of the financial community in terms of assets — credit unions — has a wonderful David vs. Goliath character, but it is also a revealing story of just how far banking corporations will go in a reckless campaign to control the financial services playing field to the detriment of consumers.

At stake in the fight is the right of consumers from multiple employee groups to band together to form a single credit union. This right, granted under regulations issued in President Reagan’s Administration, has been a huge benefit to workers in small businesses where the number of employees is often too small to support a credit union. By banding together with other employee groups, workers in these small firms can enjoy the benefits of credit union membership.

In a lawsuit brought by the banking industry, the U.S. Supreme Court currently is reviewing a D. C. Court of Appeals ruling that prohibits credit unions from accepting any new employee groups into their field of membership. If the banks prevail in the Supreme Court and the National Credit Union Administration (NCUA) is prohibited from granting charters for multiple-employee credit unions, millions of consumers would be denied the right to form and join credit unions.

The Filene Research Institute estimates that 62 percent of American workers are employed by companies which are too small to support a credit union. Several thousand credit unions, representing more than 150,000 employee groups could be forced to close their doors if the banks win in the Supreme Court. In the process, the right of financial choice would be denied for an estimated 30 million workers and their families.

The battle has spread outside the courts with banks and credit unions bombarding the public with competing television advertisements. Watching the campaign, many citizens may regard the issues as someone else’s fight.

But, the reality is that almost all consumers — not just credit union members — have a big stake in maintaining a viable credit union movement.

Credit unions make up only a little more than two percent of the assets of depository institutions. In fact, the nation’s two largest banks have more assets than the entire universe of 12,000 credit unions.

Despite their small market share, credit unions do provide “competition by example.” On average credit union fees are less than half those of the major banks, and many credit unions don’t impose any fees for basic banking services. In addition, rates on credit union loans and credit cards are often lower and interest rates on savings higher than the banks in the same communities.

Consumers save an average of $250 to $500 annually by carrying out their financial transactions with credit unions, according to data compiled by Bank Rate Monitor and Sheshunoff Information Services.

All of this provides, at a minimum, a source of embarrassment for a banking industry which has been gouging its customers with a growing list of excessive and arbitrary fees in recent years. Record bank earnings are, in large part, the direct result of the industry’s ability to impose fees on everything from telephonic inquiries to the use of counter checks. Nothing moves in today’s banking industry without a fee being attached.

But, the banks don’t want to give up the lucrative fee income in order to meet the pro-consumer performance of credit unions. Instead, they see the legal challenge to the “common bond” of small occupational units as the route to weaken member-owned credit cooperatives. Eliminating competition is a lot easier than matching it.

If the Supreme Court wipes out the ability of multiple employee groups to form a single credit union under a common bond, the Congress needs to immediately adopt legislation that will allow these credit unions to operate.

Already, 110 members of the House of Representatives have co-sponsored the Credit Union Membership Access Act which would validate the current interpretation of the common bond and allow the multiple-occupation credit unions to continue.

With big banks moving across the nation under the Interstate Branching Act and with new mega mergers announced almost daily, the need to maintain consumer choice in financial services is critically important. Credit unions formed by consumers should be among the choices for citizens who don’t want to accept the services and prices that will be handed out on a “take it or leave it” basis by a handful of big banks.

If anyone doubts that the nation is headed towards a highly concentrated financial industry, they should listen closely to the words of Hugh McColl, chief executive of NationsBank — a corporation rapidly consolidating its dominant position over banking in the east, the south and the southwest sectors of the nation.

Here’s the way, McColl describes the future shape of the banking industry:

“…a barbell-shaped industry with a dozen or half-dozen very large players on one end and four or five thousand boutiques on the other…”

Clearly, consumers need a vibrant credit union movement to provide services, price competition and choices in a world dominated by a few big corporations as envisioned by McColl.