Banking trade groups say a federal court ruling against a sprawling community charter for a Pennsylvania credit union is an "important" victory for the industry.

The American Bankers Association had argued in its court challenge that the National Credit Union Administration overstepped its authority in approving the charter — which covers six counties with 1.2 million residents.

In her ruling Monday, Yvette Kane, chief judge of the U.S. District Court's Middle District of Pennsylvania, sided with the bankers and called the charter "arbitrary and capricious."

The NCUA, which approved the charter in 2003 for Members 1st Federal Credit Union in Mechanicsburg, must set it aside, she ruled. (Charters covering the same area also have since been granted to New Cumberland Federal Credit Union and AmeriChoice Federal Credit Union.)

The judge ordered both the ABA and the NCUA to suggest a remedy for the affected credit unions within 30 days.

The two sides said the remedy could range from the credit unions' submitting more documentation to justify the membership field to the charters' boundaries being redrawn to cover a smaller area.

Banking advocates were encouraged by the ruling. "This is an important victory for the banking industry," said Keith Leggett, chief economist at the ABA. "What you are clearly seeing is a body of evidence that shows there are limits to the size and scope of a community charter that can be approved by the NCUA."

The Pennsylvania case was the latest to scrutinize community charters that cover large regions. In 2004, a U.S. District Court in Utah ruled that a six-county region stretching from Wyoming to Nevada was not a well-defined local community. Also, the Kansas Legislature passed a bill this year to prevent state-chartered credit unions from counting the entire state as a field of membership.

However, the credit union industry and its advocates said that every community charter's field of membership is unique and the Pennsylvania ruling should not be considered part of a trend.

"I don't want to make light of this, obviously, but it is not necessarily a signal of problems in other areas," said Carrie Hunt, senior counsel and director of regulatory affairs at the National Association of Federal Credit Unions, a trade group.

The NCUA said it is "disappointed" in the decision and is reviewing it to decide how to respond.

"It is important to note that this decision did not challenge NCUA's community charter regulations," the agency said in a press release. The challenge centered on a specific charter.

Ms. Hunt said that an appeal is unlikely but that one is possible if the regulator is unhappy with the final remedy.

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