LAS VEGAS - People like Ed and Judy Gray, owners of a Dairy Queen in Henderson, are the focus of an increasingly bitter debate between commercial banks and credit unions in Nevada.
The Grays took their business several weeks ago to the Community One Federal Credit Union when it offered to match the bank rate on a loan secured by their business's equipment and furnishings.
Ed Gray said he became annoyed with the bank when loan officials asked for personal financial information to satisfy bank examiners - even though their loan payments were current.
When Ed Gray balked, bank officials agreed the couple wasn't required to comply, but they kept sending letters requesting the information.
"I just got tired of their nonsense," he said. Community One officials "haven't hassled us at all."
Stories like that make bankers angry, because they pay federal income taxes and are being forced to compete with credit unions, which do not pay income taxes.
Credit unions say they have long had authority to make business loans, although they traditionally have not served business customers. Some credit unions, including Nevada Federal and Clark County Credit Union, are just starting to make commercial loans, and business loans secured by real estate.
Business lending isn't the only area where credit unions have been making inroads into traditional commercial bank markets in recent years. Credit unions once only offered financial services to employees at a specific or a group of companies, but many credit unions now offer financial services to everyone who lives, works or worships in a community.
"They will not be happy until they have full banking powers while retaining the exemption from paying taxes," said Bill Martin, chief executive officer of Nevada State Bank.
The main sticking point: Credit unions don't pay corporate income taxes or the state payroll tax.
"They don't pay jack," said Tod Little, chief executive officer of Silver State Bank in Henderson. "It's not right, and it's not fair. I don't think anybody in the banking business is against the credit unions if they would follow their original mission, which is to serve people of small means."
Alan Pughes, chief executive officer of Community One Federal Credit Union, countered that "banks have to have a lesson in history. Credit unions have always been able to make business loans."
A 1998 federal law limited credit union business loans to 12.25 percent of their assets. "Prior to that, credit unions were able to make business loans without limitation," Pughes said.
The Internal Revenue Service, however, determined that credit unions were exempt from income taxes because of their organizational structure as member-owned organizations, Pughes said.
"It has nothing to do with the products that each of the institutions sells," Pughes added.
Credit unions often pay dividends to their owners, members who are taxed on that income, Pughes argued.
Bill Ferrence, manager of Boulder Dam Credit Union, said his bank has been successful making business loans for three main reasons - "rates, terms, service."
Credit union managers say their business loans are a small fraction of the total business loans made by banks. Business loans on the books of Nevada credit unions total about $80 million.
"Doesn't sound like we're cornering the market," said Brad Beal, chief executive officer of Nevada Federal Credit Union. "It's a minuscule amount. I bet we're a tiny fraction of 1 percent."
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Information from: Las Vegas Review-Journal, http://www.lvrj.com
