To credit unions, the NCUA’s new Field of Membership rules are a simple effort to allow more consumers access to their services.
For bankers, the rules amount to a power grab that will provide tax-exempt financial institutions with an unfair advantage in the ongoing battle for customers and members.
It will be up to a federal judge to decide who’s right.
Wednesday’s lawsuit filed by the American Bankers Association will mark the third time that the two sides duke it out in federal court over the NCUA’s interpretation of the constraints that Congress intended to impose on credit unions.
In the suit, filed in the U.S. District Court for the District of Columbia, the ABA said that the final rule expands “the universe of members eligible to join a single federally-chartered credit union well beyond the limits established by Congress.”
Congress intended to ensure that credit unions provided credit to “people of small means” in local communities and in groups that share a common bond, the ABA said, in the lawsuit.
The bankers argue that the NCUA repeatedly has sought to weaken the field-of-membership requirement for community credit unions.
And the bankers have repeatedly fought those efforts.
In 2008, U.S. District Judge Yvette Kane wrote that the NCUA acted in an “arbitrary and capricious manner” in reviewing evidence and granting a community charter to Members 1st Federal Credit Union in Mechanicsburg, Pa., a suburb of Harrisburg.
The ABA and Pennsylvania bankers had sued NCUA after the agency’s 2003 decision, granting Members 1st a community charter for a six-county, 3,400 square mile area.
In 2004, U.S. District Judge Dale Kimball ruled in a suit, also filed by the ABA, that the NCUA had not followed certain metropolitan statistical area standards in granting the six-county approvals for Tooele FCU, America First FCU, Goldenwest FCU and University of Utah FCU, all in Utah.
This time, the battle isn’t over the NCUA’s interpretation of its rules, but instead over an expansion of the rules themselves.
“There is no downside to the bank lobby taking legal action on this; whether the bankers have a case is far less clear, especially on their contention that the new rule somehow violates the Federal Credit Union Act,” said John McKechnie, senior partner at Total Spectrum and former director of political affairs at CUNA. “The Agency was particularly careful in constructing this regulation, and I feel confident that it will stand up in court.”
While the NCUA declined comment on the suit, the various trade groups on the two sides of the issue immediately began rattling their sabers.
“The NCUA rule is the latest example of the captive regulator inappropriately and illegally extending the industry’s taxpayer-subsidized competitive advantage over taxpaying community banks” said Camden Fine, president and CEO of the Independent Community Bankers of America. “If credit unions want to eliminate common-bond requirements and operate like banks, they should be taxed like them and required to meet the same set of regulatory standards.”
Fine’s organization is suing the NCUA over the agency’s new Member Business Loan rules.
And credit union trade groups took their own shots.
“If the banks had put this much effort and money into policing themselves, maybe they could have helped avoid the financial crisis they caused that harmed consumers and our country’s economy,” said NAFCU President/CEO B. Dan Berger.
CUNA President/CEO Jim Nussle was no more impressed by the ABA’s suit.
“This meritless attack from bankers on the NCUA’s rule completely ignores both the law and the NCUA’s authority to regulate credit unions,” Nussle said.
