Banks Want Credit Unions Out
Of Agriculture Loan Business

WASHINGTON —(AP)— Larry Green figures he would have been out of farming long ago without the credit union in Fulda, Minn., that opened in 1986 at the height of a farm-credit crisis.

"Our credit union is self-help. It's the people in the community coming together to deposit their money and lend it out to people who need it," Green said Monday.

But banks say that credit unions, which are exempt from income taxes, have an unfair advantage in competing for agricultural business and other commercial lending. They are pushing Congress to prohibit or at least restrict such loans.

Credit unions "are basically receiving a tax subsidy to compete against the private sector," said Virginia McBride, a spokeswoman for the American Bankers Association.

Nationally, farm loans account for less than six percent of lending among credit unions that offer them. In North Dakota, farm loans account for a third of the lending at credit unions that offer them. In South Dakota the share is 14 percent, and in Minnesota 12 percent.

The House approved a credit union bill earlier this month that would override a recent Supreme Court ruling restricting their membership. The bill would subject credit unions to fair-lending practices now imposed on banks but would do little to restrict their commercial lending.

The Senate Banking Committee will take up a similar bill on Thursday.

Banks are lobbying committee members to prohibit or at least restrict commercial lending by credit unions. Credit unions are fighting back with a furious lobbying campaign that includes flying members into Washington to meet with lawmakers.

Senators are trying to walk a fine line between the two sides.

"We want to make sure credit unions and your small-town banks have a chance to be good viable competitors," said Sen. Rod Grams, a Minnesota Republican who is a member of the Banking Committee. "We don't want a community with just a credit union or a community with just a bank."

Fulda's credit union, which has 2400 members, $13 million in assets and a branch office in neighboring Worthington, opened with great fanfare 12 years ago after federal regulators shut down the local bank. The late Gov. Rudy Perpich, whose administration helped establish the credit union, cut the ribbon.

As of the end of 1997, the credit union had 135 farm loans outstanding totaling $4 million. None was delinquent.

"Without (the credit union) we wouldn't be able to go on," said Elinor Bentson of Lake Wilson, who was in Washington to lobby against restrictions on credit unions. She said she and her husband turned to the credit union after the local bank called in their loans in 1987. "There wasn't anyone else around."

Mark Koopmeiners, a dairy farmer near Melrose, Minn., says the local credit union was the only source of credit he could find when he wanted to buy a farm at age 18. He's now 33 and has 60 milk cows.

The Melrose credit union, which was originally formed in the 1930s to serve the local Roman Catholic parish, has $143 million in assets and about 1600 business loans, including about 900 agricultural loans.

Farmers say credit unions typically charge about nine percent interest while rates at commercial banks can range up to 12 percent.

McBride, the spokeswoman for the American Bankers Association, said farmers have a variety of sources of credit, including their local banks. "Rural development is a very important issue to the banking industry. We're looking for the opportunity to serve agricultural customers we can," she said.