Court Refuses to Further Widen Credit Union Membership Turf

The federal appeals court here has rejected a bid by credit unions to add new companies to their fields of membership.

The U.S. Court of Appeals for the District of Columbia ruled late Wednesday that the government failed to meet the "stringent standards" required to overturn a court order limiting federal credit union expansions.

As a result, 3,586 occupation-based credit unions may add only customers who work for companies already within their fields of membership. This standard, which the appeals court adopted in December, it is expected to remain in effect until the Supreme Court decides the AT&T Family Federal Credit Union case early next year.

Also on Wednesday, a federal judge dismissed a challenge to the National Credit Union Administration's 1995 seizure of Capital Corporate Credit Union, Lanham, Md.

The field-of-membership ruling will prevent AT&T Family from serving 20 new companies, said Rick Miller, the credit union's senior vice president of corporate development.

"This is not fair," Mr. Miller said. "These companies want to be able to offer a full range of benefits, including credit union membership."

Banking industry officials said the court should have gone further and overturned the Dec. 24 order allowing credit unions to add customers from companies within their fields of membership.

"This shouldn't be interpreted as closing the floodgates, because the Dec. 24 order is still in place," said C. Dawn Causey, general counsel at America's Community Bankers. The new order still lets a credit union sign up members who do not share a common bond but are already within its field of membership, she noted.

The case began in December 1990 when five North Carolina banks challenged the NCUA's decision to let AT&T Family serve more than 100 companies.

The appeals court sided with the banks in July, ruling that all members of federally chartered, occupation-based credit union must share a single common bond. The Supreme Court agreed in February to review the case.

In the Cap Corp case, Judge James C. Cacheris of U.S. district court in Alexandria, Va., dismissed the suit by 96 credit unions on technical grounds.

The judge said the 1989 thrift bailout law requires credit unions to exhaust all their appeals within the NCUA before suing. Because none of the credit unions asked the NCUA to reconsider the Cap Corp seizure within the 10 days allotted for appeals, they cannot sue.

NCUA officials praised the ruling. "We had no doubt all along that we would win," NCUA spokesman Robert Loftus said. "NCUA acted properly and prudently on behalf of credit unions in the entire Cap Corp matter."

Credit union executives said they were surprised by the decision. "We didn't expect to lose the whole thing," said Ronald L. Snellings, chief executive of Pentagon Federal Credit Union, which lost $1.1 million when Cap Corp failed. "We won't know whether we are going to appeal or not until after we closet with the lawyers."

The NCUA seized the $1.4 billion-asset Cap Corp on Jan. 31, 1995, because its portfolio was laden with risky collateralized-mortgage obligations.

The agency liquidated the securities, resulting in a $26 million loss to the credit unions that owned Cap Corp's preferred stock.

In its suit, the credit unions charged that the NCUA underestimated the value of Cap Corp's portfolio, lacked legal authority to liquidate the institution, and caused Cap Corp to sustain unnecessary losses.

To support its case, the credit unions introduced an affidavit from former NCUA Chairman Roger W. Jepsen, who said liquidating Cap Corp was "absolutely unnecessary and without economic justification."

The NCUA dismissed Mr. Jepsen's charges. "The bottom line is that we won and they lost," Mr. Loftus said.

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