The House Banking Committee opened hearings recently on a bill to overturn a Supreme Court ruling favoring banks over credit unions. While the legislation seems assured of passage, bank officials raised important points about the civic responsibility that comes with tax-exempt status.

Banks and thrifts pay income taxes. Credit unions are exempt. Banks and thrifts are subject to the Community Reinvestment Act, a 1977 federal law requiring those institutions to meet the credit needs of their home communities, especially the low- and middle-income neighborhoods. Credit unions are exempt.

As credit unions become more and more bank-like in size and scope, and as Congress considers scrapping the “common bond” membership requirement intended to keep credit unions blue-collar oriented, K. Reid Pollard of the Independent Bankers Association of America says lawmakers must do more than make an end run around the Supreme Court. It must rewrite the rules of the game.

“Larger credit unions that want to have multiple employer groups, maintain commercial accounts and advertise to the general public — in other words, become the functional equivalent of banks — should have to make a choice,” Pollard testified. “They could either retain their credit union status but come under banking laws and regulations, including taxation and the Community Reinvestment Act; or they could convert to a mutual savings bank charter, thus maintaining their cooperative structure while engaging in banking activities.”

Credit unions were created in 1934, at the height of the Great Depression, to give co-workers and neighbors a way to band together in mutual financial support. While many credit unions remain home-grown in size and function, the banks say some have lost sight of their roots, have “cherry-picked” the most affluent membership groups and have turned their backs on pressing community needs, becoming more interested in financing yachts than inner city building renovations.

Even some of the most pro-credit union committee members agree. Rep. Joseph Kennedy II said there is “mounting evidence that credit unions do not have the sterling record of serving low and moderate-income and minority consumers that they are purported to have. The time has come to apply the same community reinvestment standards to credit unions that we do to banks and thrifts.”

The Community Reinvestment Act is flexible; banks and thifts are able to put together a package that best serves their community, such as small, unsecured business loans, mortgage programs for low-income homebuyers, college-savings plans and no-fee checking accounts for the elderly. Most credit unions do they same things voluntarily; those that do not have made their industry vulnerable to attack. The rules do need to be changed and extending the Community Reinvestment Act to all financial institutions seems a good place to start.