HARRISBURG, Penn. — In a scenario reminiscent of the court challenges that led to passage of HR 1151 10 years ago, lawyers for the banks argued in federal court that NCUA overstepped its legal boundaries when it approved a sprawling six-county area covering more than 1.1 million people as a "well-defined, local community" for a nearby credit union.
The courtroom showdown focused on the term local, which was added in 1999 to NCUA's rules defining boundaries for community charters.
Washington attorney David Overstreet, representing the American Bankers Association, argued the area approved by NCUA, which spreads across 3,400 square miles, is too broad to qualify under NCUA's own rules as a local community.
He told the judge in awarding the broad community charter to Members 1st FCU, NCUA illegally combined two separate communities connected by Pennsylvania's Interstate 83, those surrounding Harrisburg and York and approved it as a single well-defined, local community. Those areas, he insisted, represent two separate metropolitan statistical areas and two separate trade areas, that cannot be considered to share a common bond — the traditional standard for credit union membership.
"NCUA's acceptance of two areas as one is arbitrary and capricious," said the bankers' lawyer, calling the resulting field of membership "a barbell with two independent ends."
A New Assault By Banks
The federal court hearing is part of a new assault by bankers on credit unions' field of membership, a 20-year battle that started in 1987, with the AT&T Employees FCU case. It ultimately reached the U.S. Supreme Court, which ruled in 1998 that NCUA illegally expanded the common bond for credit unions to allow them to serve multiple common bonds, known as select employee groups.
Despite a nationwide campaign convincing Congress to overturn the High Court ruling, the bankers have continued to challenge credit union expansions in both federal and state courts. The ABA and the other groups suing over the Members 1st FCU ruling are also suing the state banking commissioner over FOM rulings in Pennsylvania, which has become ground zero of the banker-credit union wars.
Since the landmark 1998 bill overturning the Supreme Court ruling, HR 1151, the battle has shifted from the allowance of multiple common bonds to the restrictions on community charters, which have turned well more than 2,000 credit unions in recent years into local community financial institutions — in direct competition with community banks.
Eric Womack, a Justice Department attorney representing NCUA, told the judge the credit union regulator conducted a comprehensive review of Members 1st's proposed community, even requiring the $1.2-billion credit union to reduce its area because the original proposal did not meet the agency's own standards for a distinct community. The 30-month review eventually reduced the proposed community from a total of eight counties to the six under question.
"You can see a consistent effort by NCUA to whittle this down, or at least make some effort to make it consistent with agency policy," said Womack.
The ABA, along with the Pennsylvania Bankers Association and the Pennsylvania Association of Community Bankers, have asked the court, the U.S. District Court for the Middle District of Pennsylvania, to set aside the community charter granted by NCUA to Members 1st FCU, as well as the same community charter subsequently granted to New Cumberland FCU and AmeriChoice FCU.
The battle over community chartering boundaries is similar to courtroom challenges fought in recent years between the bankers and credit unions in federal court in Utah and state courts in Missouri, Virginia and another ongoing case in Pennsylvania.
One CEO's View
Robert Marquette, president of Members 1st FCU, who watched the court argument, said his credit union has not slowed its expansion plans to see how the case turns out. "We've kept on going straight ahead. We haven't paused one bit. We've taken the agency's (NCUA) decision and acted in good faith," he told Credit Union Journal after the court session.
Judge Yvette Kane, who is presiding over the case, said she expects to issue a ruling within the next 90 days.
(c) 2008
