Bankers File Suit Over Underserved FOMs

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In a new legal assault on credit unions, the American Bankers Association filed suit in federal court last week challenging NCUA's widely popular underserved expansions, which have extended credit union services to millions of low-income and inner city communities over the past three years.

The suit, filed in Salt Lake City by the ABA and five Utah banks, claims that America First FCU and NCUA used the agency's underserved expansions program to skirt last year's federal court ruling that struck down a broad six-county community charter for the state's largest credit union. The bankers claim that since the court ruling NCUA has systematically approved underserved expansions for the $3-billion credit union that will allow it to serve the same communities last year's court ruling prohibited them from serving.

"This expansion looks suspiciously like an end-run around the district court's decision last year," said Edward Yingling, president and CEO of the ABA.

In a sign of trouble for NCUA, last week's suit was assigned to the same federal judge, Dale Kimball, who ruled against the agency last year.

The Salt Lake City venue has been the center of the credit union-bank battles for several years, culminating two years ago with the banks' lobby of state lawmakers to enact a tax on state chartered credit unions and prompting America First and all of the rest of the state's biggest state charters to flee to the tax exempt shield of a federal charter.

Among the main protagonists in the credit union-bank battles have been two leading pillars of the state's Mormon community, Rick Craig, president and CEO of America First, which claims as much as a third of all the credit union deposits in the state, and Harris Simmons, who heads Zions Bank, which was formerly the bank of the Mormon church. Simmons, who was recently elected chairman of the ABA, has set the credit union tax exemption as his No. 1 priority during his two-years as head of the bank lobby group.

Suit Goes Further

But the bankers' latest suit goes even further than the America First case and asserts that NCUA has awarded dozens of field of membership expansions encompassing millions of Americans in violation of provisions of HR 1151, the 1998 CU Membership Access Act, which restricts the underserved expansions to multiple group credit unions only. In fact, NCUA has expanded the practice in recent months so that it is now granting conversions to community charters to credit unions simultaneously with granting underserved expansions for the same credit unions. In September, for example, NCUA allowed both Wanigas FCU, Saginaw, Mich., and WAVE FCU, Cranston, R.I., to convert to community charters and to add an underserved community, at the same time.

An NCUA spokesperson said last week the agency is reviewing the suits, including a separate suit filed by the ABA challenging three large community charters awarded in Pennsylvania, but the regulator is confident that the credit unions involved followed NCUA's regulations and that the agency's regulations are in accordance with the federal statue.

Officials at America First FCU did not return phone calls seeking comment.

Over the past three years NCUA has made its underserved expansions program a major focus, boasting last year that federally chartered credit unions had added more than 25-million potential members through the program. The program has grown exponentially during that period, with many large mainstream credit unions adding large swaths of population in markets well outside their original FOMs. NCUA has even allowed credit unions to add entire U.S. cities, many of them arguably made up of low- and moderate-income residents, to their FOMs, including Washington, D.C., Baltimore, Philadelphia, Houston, Richmond, St. Paul and Minneapolis.

"Some institutions are using the underserved provision to leapfrog their way across states," said Yingling. "Not only are many of these credit unions ineligible to do so, but there's absolutely no accountability. A credit union should not be able to claim an entire city as an underserved community and then open a branch only in the city's high-income neighborhoods."

Court Rules Against CUs

In the Utah case, the court ruled last December that a six-county FOM granted by NCUA to America First FCU and two other Utah credit unions was too broad and so did not qualify under the Federal CU Act's requirement that community FOMs be of a "well-defined, local community, neighborhood or rural district."

As a result, the four credit unions went back to NCUA and accepted smaller FOMs. But since then, both America First FCU and Goldenwest FCU have been granted underserved expansions which allow them to serve some of the same communities the court ruling barred them from.

At the same time it was filing the Utah suit last week, the ABA and a Pennsylvania bank were filing a separate suit challenging a broad seven-count community charter granted by NCUA to three Pennsylvania credit union: Members 1st FCU, New Cumberland FCU and AmeriChoice FCU, as too expansive and in violation of provisions of the community charter rules.

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