A
The delay may be extended.
The Washington D.C.-based Independent Community Bankers of America
While it has been assigned to a judge, James C. Cacheris, no timeframe for a disposition of the case has been announced.
An NCUA spokesman said the agency does not possess independent litigation authority in this matter. Antonia Konkoly, an attorney in the office of Dana J. Boente, U.S. Attorney for the Eastern District of Virginia, is slated to represent NCUA.
Thomas P. Vartanian, a partner at Dechert LLP in Washington, D.C., is leading ICBA's legal team.
Washington regulators intended to amend the Evergreen State's regulation to bring it in line with NCUA's. They opted to freeze the process Sept. 18, cancelling four scheduled public hearings. According to Director of Credit Unions Linda Jekel, Washington last revised its member business lending rule in 2001.
Under the current rule, member business lending has grown at a steady clip, even during the financial crisis, expanding at a nearly 11% compound annual growth rate since 2007. At the end of the second quarter, member business loans on credit union books topped $57 billion, according to NCUA statistics.
Bank groups might see Washington's stand-down as a victory of sorts, but the main event, ICBA's complaint, still faces some significant hurdles, according to Keith Leggett, a retired American Bankers Association economist who blogs regularly about bank-credit union issues.
One key point may center on the fact that the majority of NCUA's revised member business lending regulation, which was
"You have to have a party that's been harmed," Leggett said in an interview Friday. "Right now, you're asking a federal judge to rule on hypotheticals."
Leggett has experience in suits against NCUA. He was with ABA in the late 1990s, when it joined a number of community banks suing the credit union regulator over changes it made to its field-of-membership policies.
In that instance, the U.S. Supreme Court handed the banking industry a signal victory, ruling credit unions must share a single common bond. The ruling was undone a few months later when Congress enacted the Credit Union Membership Access Act, permitting multiple common bonds and community-wide charters.
Ironically, the same piece of legislation put in place a cap on the amount of business lending individual credit unions can do – much to the subsequent annoyance of the credit union industry.
Echoing Leggett, Debbie Matz, who served as chairman of NCUA's board when it approved the member business lending rule, professed to some surprise ICBA didn't wait until the rule took full effect before pursuing a challenge.
Issues of timing aside, however, Matz, who departed
"I don't anticipate a reversal," she said in a recent interview. "My instructions to staff [when the rule was being drafted] were to stay well within the bounds of the statute. If you read the language, I think we did that."
Last month,
Not surprisingly, bank groups see things differently than does Matz.
"To me the issue is very clear," Chris Cole, ICBA's executive vice president and senior regulatory counsel, said in an interview Monday. "It's so clear I don't see how you can render an interpretation the way NCUA does…Based on a plain reading of the law, we think we'll prevail."
The two largest credit union trade groups, Credit Union National Association and the National Association of Federal Credit Unions, announced last week that they
The trade associations, both based in Washington, D.C., said in a press release Thursday that they have jointly retained the Washington, D.C. law firm Williams & Connolly LLP to file an amicus brief supporting the member business lending rule.
"Our trade associations support the NCUA's member business lending rule, which is consistent with the law and allows small businesses more access to the capital they need," CUNA President and CEO Jim Nussle and B. Dan Berger, NAFCU's president and CEO, said in a joint statement.
While CUNA and NAFCU advocate on similar – and often identical – issues, they often run on parallel tracks, and the partnership regarding the ICBA suit is believed to be their first formal alliance since the late 1990s.
The crux of ICBA's challenge revolves around purchased loans and loan participations. Prior to February 18, they counted against the statutory cap, which limits the size of credit unions' member business lending to 1.75 times their net worth or approximately 12.25% of their total assets. Under the revised rule, purchased commercial loans and loan participations made to nonmembers will not be counted against the cap.
ICBA views the provision as a massive loophole enabling credit unions to expand their commercial lending in clear violation of the Federal Credit Union Act. It argues NCUA has no authority to exclude purchased commercial loans and participations from counting against the cap, and doing so would illegally expand the credit risk on the balance sheet and extend the tax subsidy credit unions enjoy to large commercial borrowers, a turn of events Congress never contemplated.
"It means taxpayer-subsidized lending is extended more and more toward larger businesses," Cole said. "Banks are very upset with this rule. Our board and members are 100 percent behind us."
Cole also reiterated ICBA President and CEO Camden Fine's warning that the trade group was also prepared to sue NCUA over a pending revision to credit union field-of-membership rules – another reason for the recent CUNA-NAFCU partnership,
Banking supporters claim the proposed rule, which is awaiting a vote by NCUA's board, relaxes membership restrictions to the point where "it seems like there's no restraint; like the rules don't even exist," Cole said. "It makes a mockery of fields of membership."
