Consumer deposits and loans are one worry, public accounts another

Ray Davis, who runs innovative and fast-growing Umpqua Bank, often is touted as the new face of banking in Oregon. Where old-style bankers keep customers in post office-like lobbies, Davis welcomes them in friendly retail settings for lattes and loans.

But if you want to see the traditional banker in him flare, just hold out the red flag of credit unions.

'Credit unions are doing themselves a disservice,' says Davis, whose bank has 69 branches and $2.2 billion in assets. 'They are getting into areas where they don't have expertise.

'If they are going to continue to broaden their reach and act like a bank, they should be regulated like one.'

Right now, Oregon credit unions are growing faster than the state's banks. They're also gaining ground in the Legislature, where their lobby's top-priority bill has passed the Senate and is headed for a vote in the House.

The bill, SB 331, would let public agencies deposit their money in credit unions or banks. Oregon law currently requires local governments to place their accounts in banks.

'The law would give public entities a choice,' said Mary Jane Campbell, senior vice president for sales and marketing at Portland Teachers Credit Union, the metropolitan area's largest with $1.4 billion in assets and 145,000 members.

At stake are millions in local government funds now parked exclusively in banks.

Banks argue that since nonprofit credit unions pay no corporate taxes, they shouldn't hold government funds, which are derived from taxes.

Credit union operatives counter that they pay property and other taxes, just not corporate taxes. Moreover, they say, if a locally owned credit union can give a slightly better interest rate, why should local governments be prohibited from making a few more bucks by placing their accounts in a credit union?

'It's the same issue it's been for years and years,' said Eldon Hoekstra, president of the Crown Central Credit Union in West Linn, which has $18 million in assets. 'Banks don't want any competition.'

The legislative fight stokes the long-simmering feud between banks and credit unions. After the government deposit bill was

introduced, the Oregon Bankers Association dusted off one of its hardy perennials Ñ a proposal to tax credit unions that have more than $100 million in assets at the same 6.6 percent rate that the state's banks pay via the corporate tax. That legislation, House Bill 3491, remains in committee.

While legislators mull the bills, credit unions are winning more loans and deposits away from banks. In 2002, their outstanding loans grew by 12.14 percent and deposits by 12 percent, according to Oregon Division of Finance and Corporate Securities figures. Loans by commercial banks grew only 1.18 percent last year, and their deposits increased 5.94 percent.

Banks still enjoy market share dominance, with roughly $26.7 billion of assets in the state compared with $9 billion for the state's 104 credit unions. But consumers are increasingly using credit unions for checking accounts, loans and savings, the state's figures show.

'People see financial services as a commodity,' said Harlan Barcus, senior vice president and chief credit officer of Capital Pacific Bank, a startup bank in Portland slated to open its doors in July.

'People see Washington Mutual, Portland Teachers Credit Union and retail banks like Bank of America and don't see a huge difference,' he says. 'They want to know how accessible these institutions are and what's the price. They don't care about the structure.

'More and more people are migrating to credit unions, and that's really affecting banks that are oriented to the consumer market.'

But there are significant differences. Banks are responsible to shareholders and are dedicated to making a profit. They have many regulatory hoops to go through to ensure that they serve underprivileged areas.

Credit unions are owned by their members. Without the need to turn a profit, they often offer lower interest rates on loans and higher rates on deposits than banks do. What would be profit at a bank is meted out to members as dividends Ñ which members pay taxes on.

To do your business at a credit union, you need to fit the membership profile. Traditionally, credit unions developed from employee groups or geographically in some remote areas that lacked banks.

One of the consistent flash points between banks and credit unions is broadening membership charters, which are approved by federal or state regulators.

Some credit unions are open to virtually anyone who lives in a specified geographic area. Others limit membership to employee groups Ñ but define the group liberally. For example, the Portland Teachers Credit Union has 145,000 members in the metro area, but almost 750,000 individuals are eligible to join.

You can join PTCU if you're employed by a school district in the five metropolitan counties, or if you volunteer at school, or work for a nonprofit or a private college, or are a foster parent. You also can join if you're a student at any area college; an alum of any of those colleges; a retiree from any of those institutions; the employee, widow or widower of someone who fits that description; or a family member of anyone who qualifies.

That kind of broad membership base gets Umpqua's Davis steaming.

'The original idea for credit unions was good,' he said. 'Banks had no beef. The problem now is that if you walked by or flew over some area, you're eligible to join.'

Bankers such as Davis and Barcus think that the playing field is decidedly tilted toward credit unions.

'I'm at a significant disadvantage,' Davis said. 'They don't have to pay corporate taxes. Last year we paid $12 million in corporate taxes. They don't have to serve underprivileged groups as we do.'

For Hoekstra, the tax issue is a red herring. 'As far as I'm concerned, the playing field is level,' he said.

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