FRANKFURT, Ky. – State chartered credit unions were dealt a blow last week when the Kentucky Court of Appeals ruled that state law does not allow for geographic fields of membership, jeopardizing community charters already granted at least six state credit unions.
The six credit unions, however, will be allowed to retain thousands of members accepted under their community charters, but will be barred from accepting new members based on those charters.
At least six state charters will be affected by the court ruling: Members Choice CU, Beacon CU, Service One CU, Greater Kentucky CU and Kentucky Employees CU. But the appeals court ruled that the community charters granted to each of the credit unions by the Office of Financial Institutions is void because the state credit union statute does not specifically allow for geographic-based charters.
Kentucky Employees CU doesn’t expect the court ruling to have a major impact, according to John Graham, president of the $45 million credit union. "Frankfurt is a small town and state government is the primary employer in the county, so probably 90% of people in the county are already eligible to join, either directly of through a family member," he told The Credit Union Journal yesterday.
The credit unions and the state regulator are exploring their options, which include appealing the ruling to the state Supreme Court; seeking legislation to enable community charters, or having the handful of affected credit unions convert to federal charters to allow them to serve geographic areas.
Wendell Lyons, president of the Kentucky CU League, said they will be talking with the credit unions and the state regulator to coordinate a strategy. "I can’t believe there is not a solution in sight legislatively," he said. "I think ultimately that’s where this thing is headed."
The Kentucky league, said Lyons, is committed to ensuring that a strong state charter survives. Kentucky has 95 credit unions, 26 of which are state chartered.
The court ruling is the third over the past four months favoring the bankers and adds to a growing list of credit union defeats on field of membership. In June, a federal court in Pennsylvania struck down three broad community charters granted by NCUA, then two months later a state court struck community charters granted by state regulators. In recent years courts in Utah and Missouri have also struck down credit union charter grants.
In the Kentucky case, the appeals court found first that Home Federal Savings and Loan of Ashland does have proper standing to challenge administrative rulings for credit unions, like the community charter granted to Members Choice CU of Ashland.
"The statute makes no mention of geographic fields of membership," wrote the court. "OFI has interpreted this silence as authorizing geographic fields of membership, nothwithstanding the clear legislative history that demonstrates that geographic fields of membership were proposed and rejected by the General Assembly."
"In these circumstances, it would ne an error for the Court to allow an erroneous interpretation of the statute to continue," ruled the court.
