ALEXANDRIA, Va. -
In what may be considered a quick resolution to a federal lawsuit, the U.S. District Court last week dismissed a challenge to NCUA’s rules on credit union conversions to mutual savings banks brought five months ago by a shadowy group with close ties to the banks.
The court concluded that the Coalition for Credit Union Charter Options, which insists it has support of credit unions but refuses to disclose which ones, lacks standing to challenge NCUA’s rules because it failed to prove that any of its members are in danger of being harmed by the rules. In addition, the court ruled that the group failed to show that any of its members have plans to convert to banks or that the NCUA regulation would prevent them from doing so.
NCUA said it was pleased by the ruling in the U.S. District Court for the Eastern District of Virginia. “NCUA was confident that the Court would recognize that the Coalition’s members are not in immediate danger of being harmed by the regulations, do not have immediate plans to convert to a mutual savings bank, and would not be prevented by NCUA regulations from doing so in any event,” said John McKechnie, chief spokesman for the agency.
The coalition, which has opposed NCUA’s regulations and amendments to its conversion rules since its 2004 inception, purports to represent credit unions and credit union executives. But the group is headed by Lee Bettis, former CEO of AGE FCU, which has converted to bank, and was represented in court by well-known banking lobbyist James Butera, who also represents the American Bankers Association. Bettis has insisted that it has broad support from credit union executives but has refused repeatedly to disclose their identities.
Neither representative returned phone calls from Credit Union Journal seeking comment last week.
What The Groups Asserted
The main thrust of the group’s challenge was its assertion that NCUA’s conversion rules, which were amended three times between 2004 and 2006 to make it harder for credit unions to switch to banks and violates provisions of HR 1151, the 1998 CU Membership Access Act, requiring that NCUA adopt regulations on charter conversions that are no more stringent than those set by other regulators, including the Office of Thrift Supervision.
The provision in HR 1151, sought by credit unions because it reversed a Supreme Court decision barring multiple-group fields of membership, was partly crafted by banking lobbyist Butera. It states that NCUA’s rules on charter conversions must be “no more or less restrictive than that applicable to charter conversions by other financial institutions.”
The group argued to the court that NCUA’s thrice-amended rules are invalid, arbitrary and capricious because the OTS and the Comptroller of the Currency “have not adopted such restrictive regulations for conversions from other types of financial institutions.”
Among the requirements of the changing NCUA rules are that credit unions converting to mutual savings banks must make comprehensive disclosures of future plans to sell stock to the public and state that rates offered by credit unions are generally better than those offered by banks.
The rules also require comprehensive mail balloting and a special meeting to culminate the vote.
Lack Of Standing Is Cited
But in dismissing the suit, the court never got to the main argument, ruling the group lacks standing to even challenge the rules because it did not show the rules affect its members. “While Plaintiff has alleged that the challenged regulations have made charter conversions more expensive to undertake, it does not allege that any of its members have any immediate plans to convert to a mutual savings bank or that the regulations would prevent them from doing so,” wrote Judge Claude Hilton. “Because Plaintiff has failed to establish that it has or will likely suffer an injury in fact that is actual or imminent, it lacks standing to assert this Action and this Court lacks subject matter jurisdiction.”
By ruling only on CCUCO’s standing to bring the suit, the court has left the primary matter – whether the conversion rules violate existing law–open to question. The key, however, would be to find a willing plaintiff with the proper standing to bring the suit.
(c) 2007
