Bankers Challenge 'Well-Defined' Reg

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In an unusual closed-door hearing, the Pennsylvania Bankers Association and three area banks urged the state Department of Banking last week to deny three separate credit union applications for community charters, including an interstate bid that would be one of the largest fields of membership ever granted.

The bankers argued to an administrative judge that the broad community FOMs violate the state's statute allowing for community-based FOMs and that the three state-chartered credit unions: Freedom CU, Philadelphia; TruMark CU, Trevose; and Corry Jamestown CU, Corry; are not capable of serving the large community FOMs.

The case, as it has in several other bankers' challenges making their way to the courts, centers on the definition of a "well-defined, local or rural community," first established by NCUA for community charters, and adopted by most states.

In one of the first cases decided by the courts, the Virginia Supreme Court ruled earlier this year that the state financial institutions regulator is the proper judge of whether a community request qualifies as a "well-defined, local or rural community." A state court in Missouri is expected to take up the same issue later this year.

But the Pennsylvania case is far from reaching the courts. Paul Wenzel, a spokesman for the Department of Banking, said state law prohibits him from discussing the specifics of the case but explained the administrative hearing process is preliminary to a decision by the state regulator on the three FOM applications.

A decision on the applications, expected this fall, may be appealed by either party to a state court.

"We've never had a field of membership challenged before," said Wenzel. "The current law, enacted in 2002, expanded field of membership rules, but the community charter allowance has always been in there."

Of the three applications, the biggest would allow Freedom CU to convert to a community charter covering more than five million people in eight counties in Pennsylvania and New Jersey, including Bucks, Chester, Delaware, Montgomery and Philadelphia counties in the Keystone State, and the New Jersey counties of Camden, Gloucester and Burlington. The interstate FOM, if approved, would be one of the largest ever granted.

TruMark CU has asked to serve 2.5 million people in Bucks, Chester, Delaware and Montgomery counties in Pennsylvania; and Corry Jamestown CU wants to serve the 300,000 residents of Erie County.

Officials with the Pennsylvania Bankers Association said they could not comment on the case because of a gag order by the banking department.

The Pennsylvania CU Association, which is providing legal assistance to the three credit unions, also would not comment.

But an individual who attended the administrative hearings said the bankers laid out their case that the large FOMs, unprecedented for state charters in Pennsylvania, violate the parameters of the statute and its "well-defined, local or rural community" requirements. They also argued that the applications should be rejected because the credit unions were not capable of serving such large markets.

But the credit union's lawyers argued that both issues are up to the banking regulators and not the banks to decide, the individual said.

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