The Supreme Court handed the banking industry a clear victory Wednesday by ruling that all credit union members must share a single common bond.
The justices ruled unanimously that the government broke the law in 1990 when it gave AT&T Family Federal Credit Union permission to accept members from more than 150 unrelated companies.
But they split 5 to 4 on the narrower question of whether banks had a legal right to challenge National Credit Union Administration decisions.
Though the banks chalked up a huge win, their battle to restrict credit union membership now shifts to Capitol Hill, where success is less likely.
"Banking is facing a very dangerous period," warned Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America. "Bankers have to begin working against legislation right now."
Within two hours of the ruling, the House Banking Committee had scheduled a hearing for March 10 on credit union membership practices.
A House bill authorizing federal credit unions to serve employees at multiple companies has picked up 136 co-sponsors-including Speaker Newt Gingrich, who announced his support Tuesday. Senate Banking Committee Chairman Alfonse M. D'Amato is also on board.
"As a strong supporter of consumer choice and credit unions, I believe Congress should and will enact legislation to restore the basic right of Americans to join credit unions," Sen. D'Amato, R-N.Y., said in a statement Wednesday.
The Supreme Court decision directly affects more than 3,500 federal credit unions. The case now returns to a federal judge in Washington, who could order these credit unions to divest employee groups that do not share a common bond with their core membership.
The banking industry, however, has promised not to seek such a radical action. Instead, the American Bankers Association has said it wants these credit unions prohibited from adding new groups of employees or new members from unrelated groups already served.
At a press conference, ABA deputy executive vice president Edward L. Yingling offered this deal: In exchange for dropping its common bond objections, the ABA wants large credit unions to be taxed and subject to community reinvestment obligations.
Credit union representatives were in no mood to deal.
"Absolutely no," said Patrick Keefe, a spokesman for the National Association of Federal Credit Unions. "We are not compromising on that or anything else."
However, Rep. Marge Roukema, a key Republican on the House Banking Committee, said the panel would consider imposing taxes and community reinvestment obligations on large credit unions as part of any legislative fix. "All options are open," she said.
National Credit Union Administration Chairman Norman D'Amours promised quick relief.
"We are looking at every possible legal and administrative action and procedure we can take," said Mr. D'Amours, promising to release a detailed contingency plan in a few days. In a letter Wednesday to credit unions, the NCUA said institutions may continue to admit members from companies already served.
Credit union industry leaders, many of whom are in Washington for the Credit Union National Association's annual government affairs conference, said they were ready to fight.
"There is no reason to overreact," CUNA president Daniel A. Mica said at the conference. "We have gamed this. We have played this. We have worked every possible approach. We have laid out the battle plan and we are going to carry out that plan."
Charles Elliott, president of the Mississippi Credit Union System, a trade group, said the timing could not have been better.
"The majority of Congress has been sitting there waiting for the Supreme Court decision in order to make a commitment one way or the other," he said. "It's decision time."
Credit union executives said the decision will bite financially, but none said they expected to be driven out of business. "It will hurt us because we can't grow," said James Doyle, director at Keesler Federal Credit Union, Biloxi, Miss.
Robert A. Rusbuldt, senior vice president for government affairs at the Independent Insurance Agents of America, urged lawmakers to keep the credit union issue separate from a broad, financial reform bill. "We don't want that bill to be torpedoed by this issue," he said. "Financial services reform does not need to be burdened with another controversial issue."
The Supreme Court justices were sharply divided on whether banks had the right to challenge NCUA rulings. Justice Clarence Thomas argued that banks are directly affected by the agency's actions. "As competitors of federal credit unions, respondents certainly have an interest in limiting the markets that federal credit unions can serve," he wrote.
But Justice Sandra Day O'Connor countered that a commercial interest is not enough. She said the banks should have to prove that the law was intended to protect them from credit union competition.
The justices were unanimous on the common bond requirement. Justice Thomas said any other interpretation would render the restriction on credit union membership meaningless.