NCUA Giving Up Fight for Expansion Of Houston Group

WASHINGTON - Bankers fighting credit union expansion are on the verge of winning one court battle, but are losing another.

The National Credit Union Administration recently asked the Justice Department to give up its defense of a Houston credit union's attempt to extend membership to 500,000 people, agency sources said.

Meanwhile, a judge for the U.S. District Court for the Middle District of Tennessee ruled from the bench Aug. 28 that the NCUA acted reasonably when it allowed a Tullahoma credit union to add more than 300 different employee groups to its membership.

Tennessee becomes the sixth state where courts have upheld the regulatory agency's interpretation of the "common bond" that unites credit union members. But bankers can take some solace in the NCUA's decision to back off the Houston case, the first time the agency has retreated from a field-of-membership fight.

The NCUA asked Justice not to appeal a decision by the U.S. District Court for the District of Columbia, which ruled on May 31 that Communicators Federal Credit Union's membership expansion plans were illegal.

Still, Michael Crotty, deputy general counsel of litigation for the American Bankers Association, was reluctant to celebrate.

"I don't want to say anything until I have seen that in writing," he said.

In the Houston case, the NCUA allowed Communicators Federal Credit Union to form a club that anyone 50 or older who lived within 25 miles could join. A group of Texas banks and two state trade associations sued last year, shortly after the NCUA approved the expansion plan.

NCUA officials decided not to appeal the case because they now believe Communicators Federal's plan stretches the idea of common bond past acceptable limits, top agency officials said.

The NCUA doesn't know what it will do with the credit unions that already have seniors clubs in their fields of membership.

"We could let them stand and let bankers, if they choose, challenge them on a case-by-case basis," an agency official said. "The other option is to tell each of these credit unions to go back to the chartering manual and find out if the senior or retiree associations fit the requirements. If they do, they can serve them. If not, they have to drop them, and we can check up on that through the examination process."

The agency already has declared a moratorium on such "self-created" clubs, which were first permitted in the early 1980s. But according to regulatory sources, the NCUA will issue a proposal as early as next month that would allow credit unions to help seniors or retirees create associations, complete with bylaws, which they could then serve.

Meanwhile, the Tennessee Bankers Association is still weighing whether to appeal the Tennessee case, which dates back to May 1994, when the association and Murfreesboro-based First City Bank sued AEDC Federal Credit Union, said association general counsel Tim Amis.

"He rendered a bench opinion very quickly and said he would follow that with a written memorandum," Mr. Amis said. "We'll wait to see that."

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