State lawmakers rejected a bid last week to hold harmless Missouri's largest state credit unions while a court decision striking down their fields of membership is pending.
The bid, which would have been attached to the annual banking bill, would have grandfathered all FOMs granted state charters before March 24, the date the Cole County Circuit Court struck down the regulations governing community FOMs, including those granted First Community CU, Vantage CU, St. Louis Postal CU, St. Louis Telephone Employees CU, Alliance CU and Electro Savings CU.
But the proposed amendment to the banking bill was ruled not relevant to the main bill and set aside, leaving those credit unions in limbo while the court case proceeds.
Peggy Nalls, vice president of the Missouri CU Association, said the credit union lobby will now focus on getting legislation introduced next year that will both protect those credit unions awarded FOMs found illegal by the state court and in amending the state law.
In its decision, the court overruled the authority of the state's CU Commission, made up by a majority of credit union executives, to define what would be considered a valid geographic area for purposes of setting an FOM.
The state court asserted that boundaries accepted by the commission, such as counties, townships, zip codes, telephone area codes, and even cities do not qualify under the state's statute-which is based on NCUA's-to delineate community FOMs.
Judge Richard Callahan said the broad community grants awarded the state-chartered credit unions did not fit the definitions of "well-defined," "local neighborhood" or "rural district," on which both the federal law and the state's, adopted in 1998 just before the passage of the CU Membership Access Act, rely to approve community FOMs.
CUs Request A Review
The credit unions affected by the court ruling have requested that the judge review his ruling, which he has 90 days to do. If the judge does not change his ruling, the credit unions are expected to appeal it to the state Supreme Court, meaning a final ruling in the matter is still at least a year away.
Max Cook, president of the Missouri Bankers Association, which brought the legal challenge, said the bankers opposed last week's legislative initiative because it would allow a continuation of the rules struck down by the court.
"Really, what it would do is allow the Credit Union Commission's regulation to continue on into the future and that regulation is one that the court struck down and said it was much too broad," said Cook.
Despite a ruling that the FOMs granted are illegal, Cook doubted that the court would order a divestiture of members or branches in the questioned FOMs.
"As a practical matter, when there are rulings or laws passed, actions that take place before the rulings or laws are struck down are rarely, if ever, reversed," he said. "Because those branches or new members were added while the rules or regulations were in place I cannot envision a court saying it would require divestiture."
He said the bankers have not decided whether to seek divestiture.
The bankers, said Cook, are willing to meet with the credit union lobby to come to an agreement on legislation to address the FOM issue. "But anything that is broad and ill-defined, we will be against," he said.
