ANNAPOLIS -- Haunted by memories of Maryland's 1985 thrift crisis, which cost the state more than $200 million, a Senate committee made a rare reversal yesterday and voted to pull the plug on the insurer of Maryland's 12 remaining state-chartered credit unions.
But officials of Credit Union Insurance Corp. complained that proponents of the bill to terminate the company are ignoring the glowing health of CUIC and its small member credit unions.
The move would send those institutions into a much weaker federal insurance system, the CUIC officials said.
Wrapped up in the fight over the legislation are allegations of political revenge by state regulators and financial opportunism by legislators who see a chance to claim the more than $2 million in CUIC's reserve fund.
If the private CUIC should die, the 12 credit unions and their nearly $70 million in insured deposits would have to switch to the federal insurer, the National Credit Union Share Insurance Fund (NCUSIF). Credit union depositors likely would see no difference in operations, but the credit union officials fear more paperwork and a possible increase in insurance premiums.
As written -- and killed in a 6-5 vote by the Senate Finance Committee last week -- SB 574, sponsored by committee Chairman Thomas P. O'Reilly, D-Prince George's, would have required the state institutions to join the federal NCUSIF by Oct. 31, with a possible extension to Dec. 31.
The bill also would have dumped about $2.2 million from CUIC's reserve fund into the state treasury, to be "dedicated to the enforcement of the solvency of state-chartered financial institutions and the regulation of consumer credit."
"It looks like this bill is attempting to balance Gov. [William Donald] Schaefer's budget on the backs of the credit unions," said Kenneth M. Jones, CUIC's chairman. "The arrogance of these people just amazes me."
Sen. Larry Young, D-Baltimore, said that he would reverse his vote if the bill were changed to allow the institutions up to five years to obtain federal insurance, so Mr. O'Reilly gave the committee another chance to pass the bill.
And partly in response to Mr. Jones' objections, Mr. O'Reilly decided to amend the bill so that the reserve fund money will be distributed among current and former members of CUIC, instead of to the state treasury, and in particular to the Department of Licensing and Regulation, which handles regulation of financial institutions.
The notion of the agency benefiting from the reserve fund has elicited charges of political revenge and opportunism.
Licensing and Regulation Secretary William A. Fogle Jr. in 1987 ordered an investigation into CUIC and lobbied for its demise.
Mr. Fogle was pilloried in the press for his involvement because he had previously helped organize and later supervise the Maryland Employees Credit Union, which stood to benefit from CUIC's termination.
"I think I got my brains beat out," Mr. Fogle said yesterday about the 1987 episode.
He noted that he left MECU when he took office and is not involved in credit unions in any way.