Banks lose bid to challenge credit union membership.

Banks Lose Bid to Challenge Credit Union Membership

WASHINGTON - In a blow to commercial bankers, a federal judge here has dismissed a lawsuit charging that regulators failed to enforce membership restrictions on credit unions.

The suit was filed last December by five North Carolina banks and the American Bankers Association. They alleged that the National Credit Union Administration allowed AT&T Family Federal Credit Union, based in Winston-Salem, N.C., to expand its membership to 65 groups with no direct connection to the telecommunications company.

The Federal Credit Union Act limits credit unions to accepting only members with a "common bond" to each other.

Out of Bounds

U.S. District Court Judge Stanley S. Harris dismissed the case last Friday, ruling that the banks and their trade association have no legal standing to challenge enforcement of the act.

The ruling was a major setback for bankers, who have complained that credit unions were expanding improperly and using their tax-exempt status to compete unfairly with commercial banks.

The decision casts doubt on the prospects for any future challenges.

Asked if an appeal was planned, Michael F. Crotty, the ABA's lawyer on the case, said: "I don't know yet. I would assume so, but that's not my judgment to make."

Banks Excluded from Law

In his ruling, Judge Harris said the Federal Credit Union Act was designed to establish a role for credit unions, not to protect the competitive interests of banks.

To challenge the implementation of a law, Mr. Harris said, the plaintiff must be among the parties intended to be protected.

"The goal of the test [for standing] is to exclude those plaintiffs who are more likely to frustrate than to further statutory objectives."

NCUA general counsel Robert M. Fenner, in an interview on Wednesday, applauded the decision and defended his agency's application of the common-bond limits:

Asked how banks, in light of this decision, may ever challenge the agency's enforcement of common-bond rules, Mr. Fenner said: "That's up to them to figure."

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