Credit Unions on Edge Over Pending Court Ruling

Despite huge layoffs at banks and savings and loans, the ‘90s have been good for many California credit unions, which have grown by broadening their services and membership. But now it’s nail-biting time.

In the next few days, the Supreme Court is expected to decide whether it will take up a case that ultimately could help credit unions continue to grow or lead to their shrinkage.

The case involves a 1934 federal law that requires members of a credit union to have a “common bond” such as occupation or geographic area. At one time, that wasn’t an issue because credit unions were generally limited to a single employer. But in the last decade, individual credit unions have increasingly added members from a variety of employers, in some cases as a way to survive big layoffs at a major company.

The banking industry, which initiated the legal battle, says that has given credit unions an unfair advantage because they don’t pay income taxes and are exempt from some banking laws. An appellate court sided with the banks, but the National Credit Union Administration has asked the Supreme Court to consider the matter.

The stakes are big. There are about 750 credit unions in California. And their employment overall has increased by 13% since 1991, to about 18,000, even though the rest of the financial services industry in the state has shed more than 20% of its work force.

The high court’s decision is likely to have an immediate effect on federally chartered institutions, such as Telesis Federal Credit Union in Chatsworth, which are the focus of the suit.

Once called Teledyne Federal Credit Union, the institution changed its name a few years ago to expand its membership base beyond that single employer. Grace Mayo, the credit union’s CEO, says the organization has doubled its membership since the early ‘90s by merging with smaller credit unions and signing up employees at mom-and-pop businesses such as auto body shops.

Though concerned about the upcoming court decision, Mayo says she’s confident credit unions will continue to flourish as long as they provide a good service.

But even state-chartered credit unions sense potential danger ahead.

“Should the banking community prevail, there would be some initiative to promote that to state-chartered credit unions,” said John Rodriguez, president and CEO of the California Credit Union, formerly called the Los Angeles Teachers Credit Union.

This credit union, too, changed its name about 18 months ago as it strengthened marketing and opened membership to PTAs and certain student organizations. Since then, California Credit Union’s membership has grown 12% to 85,000.

“We’re hoping the Supreme Court does take it and rule in our favor,” he said.

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Times staff writer Don Lee can be reached at [email protected]