The justices rule that they
enrolled people who
were ineligible

From staff and wire reports

The U.S. Supreme Court ruled for bankers today in a high-stakes turf battle with credit unions, saying the government wrongly let credit unions enroll members beyond what federal law allows.

In a 5-4 ruling, the justices threw out a 16-year-old government policy that has let credit unions accept millions of new members from outside traditional membership pools.

Hawaii's credit unions joined their national counterparts in decrying the decision and said it will make it impossible for employees of the small businesses that make up most of Hawaii's economy to join credit unions.

Banks in Hawaii hold to the bankers' national position that the tax-free credit unions, less regulated than banks, should not be able to just bring in anyone as a member.

One bank spokesman, Gerry Keir of First Hawaiian Bank, said banks are not out to eliminate credit unions.

However, banks support the high court ruling "that the law does not allow multimillion-dollar credit union conglomerates to get special regulatory and tax breaks while competing with banks that do pay taxes and are tightly regulated," Keir said.

The Hawaii Credit Union League, which said it represents 113 credit unions with 550,000 members and a total of $3.4 billion in assets, called the ruling another setback for Hawaii consumers because many employees of small businesses will no longer able to join credit unions.

Dennis T. Takimoto, the organization's president, is leading a delegation of credit union members who are meeting this week with Hawaii's congressional delegation in Washington. The credit unions want to gather support for legislation that would counter the high court ruling.

At issue for the credit unions, which are nonprofit financial cooperatives, is that the government since 1982 has been allowing credit unions to band together employees of many different small businesses. Today's ruling outlaws that, reverting to the 1934 Federal Credit Union Act.

Lauri Okawa Moore, a spokeswoman for the Hawaii credit unions' organization, said the original law states a credit union could be formed only if there were 500 members with a common bond, such as the same employer.

"Ninety percent of the employers in Hawaii have fewer than 500 employees," she said. "The bankers see credit unions as a threat to them. For us, it's a matter of survival."

The Hawaii Bankers Association has said it supports the bankers' arguments that the Supreme Court affirmed today, but had no immediate comment.

But First Hawaiian's Keir said: "We have no quarrel with the thousands of credit unions, including most of those in Hawaii, that obey the law and remain faithful to their original mission,"

The court decision doesn't prevent consumers from joining credit unions for which they are legally eligible, he said.

William T. McConnell, president of the American Bankers Association, said bankers won't try to force out credit union members who signed up under the now-invalidated rule, but they will move to stop credit unions from using the rule to add new members.

The broader rule is contrary to Congress' intent as expressed in the federal law, Justice Clarence Thomas wrote for the court.

However, legislation has been proposed in Congress to retroactively authorize such expansions in credit union membership. House Speaker Newt Gingrich announced Monday he would co-sponsor the proposal.

Today's decision upholds a lower court ruling that the Clinton administration said "threatens nationwide instability and losses in the credit union industry."

Credit unions offer many of the same consumer services as banks but can make better deals on loans and savings rates because they don't pay federal taxes.

---

Star-Bulletin reporter Russ Lynch and
the Associated Press contributed to this report.