Faced by the possibility of another embarrassing court ruling, NCUA in the final workday of 2005 withdrew its approval for America First FCU to serve underserved communities and ordered an immediate halt to all new underserved additions for community charters.
The regulator's action comes as a federal court in Utah is reviewing a new suit brought by the bankers claiming NCUA has illegally allowed dozens of community chartered credit unions to add underserved communities to their fields of membership in contravention of the 1998 amendments to the Federal CU Act under HR 1151, the CU Membership Access Act, which the bankers say limits underserved expansions to multiple group charters.
It also comes in the wake of recent court losses by NCUA, including last August's ruling by a federal magistrate that NCUA overstepped its authority in denying the controversial conversions of credit union giants Community CU and OmniAmerican CU to mutual savings banks, and the December 2004 ruling by the federal court in Utah striking down a six-county community charter granted America First FCU and three other Utah credit unions. That ruling was issued by the same federal judge who is reviewing the new bankers' suit.
In announcing the halt to such expansions NCUA said its policy has been to allow all federally chartered credit unions, regardless of their charter types, to serve underserved areas, but that the NCUA Board believes it is prudent to withdraw the approvals for America First and impose a moratorium on new underserved expansions for community charters while the bankers' suit is pending.
The bankers claim NCUA used its underserved expansions policy to skirt the judge's ruling in the Utah case, allowing America First FCU to re-enter five of the counties from which it had been barred by the judge's ruling. The enticement of the six-county charter-one of the largest ever granted by NCUA-helped America First FCU and Goldenwest FCU escape the Utah bankers efforts to tax Utah's largest state-chartered credit unions earlier in 2004, providing those credit unions with the sanctuary of the tax exemption for federally chartered credit unions.
Re-entering Markets
Like America First, Goldenwest has been allowed to re-enter several of the counties barred by the judge's order through NCUA's underserved expansions policy. The bankers have not challenged the underserved expansions approved for Goldenwest, which has a multiple groups charter.
NCUA's peril has been increased in the latest suit because it has been assigned to the same federal judge, Dale Kimball, who ruled against them in the previous Utah case. The bankers have made it clear they will try to convince Judge Kimball that NCUA's actions have circumvented his earlier decision.
But the latest bankers' suit, filed by the American Bankers Association and the Utah Bankers Association, goes beyond the two Utah credit unions and asserts that hundreds of underserved expansions approved by NCUA for community charters violate the HR 1151 provisions the bankers claim restrict such expansions to multiple group charters.
In fact, the bankers claim that NCUA has used the underserved policy to provide some of the broadest community charters ever-some encompassing large U.S. cities, such as Philadelphia, Baltimore, Washington, Miami, and Houston.
The Banker Response
The bankers claimed the NCUA action indicated a concession by NCUA. "With its action," said Edward Yingling, president and CEO of the ABA, "the agency essentially admitted its rule allowing community-based credit unions to extend their common bond by adding so-called underserved areas is fundamentally flawed."
"This moratorium is simply postponing the inevitable. NCUA has been an enabler, allowing large community-based credit unions to skirt congressionally mandated membership restrictions under the guise of reaching out to 'underserved' areas. It is clear the law does not allow the NCUA to combine community and so-called underserved bonds," stated Yingling.
