Common Bondage

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For one credit union CEO here, credit unions are paying a price on field of membership in 2006 for legislation passed in 1998.

Roger Heacock, CEO of Black Hills FCU, referred to the current situation on FOM and serving the underserved as the "CUMAA boomerang" a reference to the landmark Credit Union Membership Access Act sometimes better known as HR 1151, which the credit union lobby successfully pushed through Congress in the late 1990s to help overturn an earlier Supreme Court ruling.

At issue is NCUA's restrictions upon federal credit unions serving multiple groups from expanding into underserved markets. Heacock laments what he believes is a weak position taken by the NCUA for caving in the face of the bankers' challenge of community charter CUs extending service to residents from underserved areas.

"They say we didn't know about the restriction, but it's all in the Congressional Record, in the legislative history. I say we should have let the court system work," said Heacock. "I'm sure they got lots of legal advice, but I wish they'd let the lawsuit continue to see if what they did violated the FCU Act, and if so we could work with Congress to change it. Now, there's no incentive to change it."

While the NCUA says it will seek a legislative change, for now it is remote. In its June decision on chartering and field of membership amendments, (IRPS 06-1) the NCUA Board tried to channel King Solomon by splitting the baby, giving bankers their greatest victory over credit unions since the Supreme Court killed multiple common bonds. Community CUs got to keep the underserved areas they took in and can grow membership within them, but they must build a service facility within those areas in two years. But the biggest challenge is to any credit union converting to community charter, which must forfeit all underserved communities obtained under the old rule. From now on, only multi-SEG CUs can take in underserved areas.

Board Member Gigi Hyland and Chairman JoAnn Johnson voted in the affirmative, asserting that legally they had no choice, leaving Vice Chairman Rodney Hood to say, "NCUA must not retreat in defeat and capitulate to the bank trade group attacks and leave underserved people without access to the lower-cost financial products that credit unions are uniquely equipped to provide."

For credit unions, the decision means a return to Congress and asking to revisit a subject long thought closed. In making her vote, Chairman Johnson cited what she called the rank hypocrisy of the bankers' position in seeking the restrictions (which stemmed from the ABA's challenge to an expansion in Utah) and their simultaneous caterwauling over CUs not serving those of "modest means" while suing to prevent delivery of those same services.

Many interviewed on the new environment for field of membership by The Credit Union Journal questioned why the agency "seems to be throwing in the towel," how the credit union lawyers got "out-lawyered," while others said they are still scratching their heads over the "gotcha" the banks' lawyers have pulled off by taking the credit union industry's signature triumph-the passage of CUMAA in near-record time-and using it to chip away at credit union powers using fine print technicalities.

During the drafting of CUMAA, the House and Senate versions of the bill contained language allowing for any type of credit union charter to take in underserved areas. While any bill goes through numerous revisions, it was in the conference committee where changes were made.

"This whole thing was an oversight," said Frank Berrish, CEO of Visions FCU, Endicott, N.Y. "When the conference worked out the details the language was deleted. If Congress had it in front of them they'd say it was their intent for credit unions to serve underserved areas. Many of us will countersue if the restriction is upheld."

Former NCUA Chairman Dennis Dollar, now a Birmingham, Ala.-based consultant, agrees. "I believed the law, as well as the legislative history was clearly intended to allow community charters to adopt underserved areas. My public position has always been that NCUA should defend this position."

Berrish said that Visions made a large investment in branches and personnel, and would have had to write off between $2 million and $5 million if VFCU ever had to disgorge members, as was mandated in Utah.

That won't happen, but having to make contingency plans while NCUA postponed issuing the rule "was a little like playing roulette."

Marc Schaefer, CEO of Truliant FCU, Winston-Salem, N.C., and chairman of the National Association of Community Credit Unions (NACCU), is more emphatic.

"We're completely outraged," Schaefer said. "When a community charter credit union is willing to offer these services-and for the banks to seek to prevent that, well... the bankers shouldn't be allowed to sue to prevent service to the underserved."

Schaefer was "present at the creation," as it was Truliant FCU, formerly known as AT&T Family Credit Union, whose FOM was challenged by the American Bankers Association lawsuit that eventually led to the Supreme Court decision ruling against federal charters serving multiple groups.

He recalls the congressional hearings and remembers well how the "accident of legislative language" was picked up, noting that Rep. John LaFalce of New York tried to introduce a fix, but it was too late. The focus was always on allowing for multiple SEG credit unions, he said.

"I'd be paranoid to think that bankers knew (about the hidden problem with the law's language), but we knew. They also changed the voting requirements on a CU to mutual conversion (lobbying for a change from a majority of members to a majority of voters). Rep. Paul Kanjorski (D-PA) said they knew it. Some I talk to are disappointed in the CU trade (groups), but credit unions themselves need to mobilize their members. We ought to put it to Congress. Which is it? Do you want credit unions to serve these people or not?

"It may have been too high a risk to challenge the ABA's position in court," Schaefer continued. "We might have lost members already taken in, so NCUA has found a middle ground. But I hope Congress will see this for what it is. They know banks aren't serving these communities. This is all about the ABA rattling their members up, it's all trade association-driven. It's all a game, but in the end it's consumers who are hurt."

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