ALEXANDRIA, Va. - The Credit Union National Association finally got its day in court Friday, arguing that the government has no basis for cutting the trade group out of corporate credit union management.
However, a lawyer for the National Credit Union Administration told Federal District Judge Claude Hilton that the regulation will protect corporates from conflicts of interest.
In November 1994, the NCUA board voted 2 to 1 to limit the number of managers that can be shared by corporates and trade groups.
Paul Lambert, who argued for CUNA, said the agency's regulation was based on speculation that abuses could occur - not on any proof.
"We are asking you to consider whether there is any basis at all in the record showing a need for this kind of rule," Mr. Lambert said. "If there were a legitimate safety-and-soundness concern, this case would never have been brought."
Kathryn Davis Ray, a Justice Department lawyer arguing the NCUA's side, said the agency does not have to produce evidence of abuse.
"These conflicts are inherent. They're unavoidable and they're obvious," she said. "The NCUA does not need to wait until it's in a crisis mode to enact regulations."
Mr. Lambert, however, pointed to a 1986 Supreme Court case that effectively overturned a Department of Health and Human Services rule based on a perceived problem that didn't actually exist.
The National Association of State Credit Union Supervisors also argued against NCUA Friday. Stewart Raphael, an attorney for that group, said the 1934 Federal Credit Union Act does not broadly permit NCUA to regulate state-chartered institutions.
Twenty-seven of the country's 43 corporates are chartered by states, and about 22 of them are federally insured. That's why, Ms. Ray argued, NCUA has the authority to regulate them.
"We must identify risks that could compromise the insurance fund," she said.
"Almost anything they did would affect the risk, wouldn't it?" Judge Hilton responded. "Do you think that would give you unlimited authority?"
Brenda Furlow, a member of CUNA's legal team, said after the hearing that Judge Hilton hit NCUA with some difficult questions. But it's "too tough to tell" which way the judge was leaning, she said.
NCUA general counsel Bob Fenner agreed, but said the case is straightforward. "I think it's an open-and-shut case," Mr. Fenner said. "It's clear NCUA has rulemaking authority."
Both sides said they expect a decision within a month.
Mr. Gardner is an intern at the Fund for American Studies' Institute on Political Journalism.
