If there is one thing credit unions and banks can agree on with regard to the National Credit Union Administration's latest efforts to revamp its field-of-membership rules it is this: a lawsuit is brewing.
"It would shock me to no end if the bankers did not file a lawsuit," Geoff Bacino, a partner at Bacino & Associates in Washington and a former NCUA board member, said in an interview.
Though no legal challenge has yet been filed, the Independent Community Bankers of America telegraphed its intent to do so even before the rule was finalized, and new changes were introduced, at last month's NCUA board meeting.
So, what are they waiting for? It could be that they're waiting to see the language of the two additional field-of-membership proposals that were discussed during the agency's Oct. 27 meeting and were recently published in Federal Register. The clock is now ticking on a comment period that ends Dec. 9.
But the ball started rolling last year, after the NCUA published the first set of field-of-membership revisions, leading bankers to flood the agency with thousands of comment letters complaining the new framework was far too liberal. And though a resumption of that campaign aimed at the new proposals would come as no surprise, observers on both sides expect bankers' response to extend well beyond letter-writing this time around.
After all, the ICBA is already suing the NCUA over the recent overhaul of member business lending regulations. And even before the regulator had issued its final rule on field of membership, ICBA Chief Executive Camden Fine said the group was also giving serious consideration to a second lawsuit challenging any new rules.
From the banking industry's perspective, dual lawsuits would be costly, but Heidi Gesell, president and chief executive of the $258 million-asset BankCherokee in St. Paul, Minn., said the investment would be money well spent.
"Somehow, we need to get our message out there," Gesell said in an interview. "We need to keep trying."
Gesell submitted a comment letter opposing the original field-of-membership proposal unveiled last November. She said that she may try a second time but that she doesn't hold out much hope that she or any other bank advocate can sway the NCUA, which she sees as more of a partner to CU industry than a regulator.
The ICBA's member-business-lending lawsuit has already spawned a rare partnership between the often-competing credit union trade groups — the Credit Union National Association and the National Association of Federal Credit Unions. Mary Dunn, former general counsel at CUNA and now a lawyer with CU Counsel, said the ICBA's telegraphing its intent to litigate "before they even saw the final rule … does call into question the rationale for a lawsuit."
One question hanging over a potential field-of-membership lawsuit is what will happen with the member-business-loan litigation. The NCUA recently filed a motion requesting a dismissal of that lawsuit, and Dunn asserted the regulator's motion clearly demonstrates the bankers have misread the rule.
It also also unclear how quickly the member-business-loan lawsuit will move through the legal system. While there is no standard timetable for when the court might respond this particular district court, the U.S. District Court for the Eastern District of Virginia, has earned the nickname "Rocket Docket" because it tends to move reasonably swiftly. Even if the court does dismiss the member-business-loan suit, however, there is still the possibility that the bankers may sue over the NCUA's recently approved field-of-membership rule.
It's not just the ICBA that is dismayed by the NCUA's liberalization of member business lending and field of membership. Fine's counterpart at the American Bankers Association, Rob Nichols, said last month that his group "will take any action necessary to protect the interests of taxpayers, small banks and the communities they serve."
The NCUA ignited the latest bank-credit union imbroglio Oct. 27 when Chairman Rick Metsger and J. Mark McWatters, another board member, gave final approval to the sweeping field-of-membership revision initially proposed a year earlier. Ironically, as part of its editing process, the agency actually removed a provision that banks had tabbed a particularly objectionable from the final version. It would have permitted entire congressional districts to be counted as well-defined local communities.
Whatever goodwill that move might have engendered was quickly canceled out when the board made public the details of the two new proposals it plans to add to the freshly modified regulation.
One would quadruple the population cap for a well-defined local community to 10 million people. The other would permit credit unions to use a narrative format, instead of existing political and census jurisdictions, to define their fields of membership.
The NCUA said it decided to introduce the proposals in response to what it termed "stakeholder suggestions" contained in the more than 10,000 comment letters it received.
The field-of-membership rule finalized late last month would take effect 60 days after it is published in the Congressional Record. The board can vote on the other proposals after the 30-day comment period.
As it stands now, the rewritten field-of-membership rule that the NCUA just approved includes several provisions that could make it markedly easier for credit unions to increase membership. One eliminated a rule that had required credit unions seeking to serve any part of a core-based statistical area to serve the region's "core," downtown district, as well.
Another did away with a guideline that had made it difficult for credit unions to serve portions of core-based statistical areas whose populations exceeded 2.5 million. Under the revised rule, credit unions can seek to serve portions of any combined statistical area, provided the population of the portion in question does not exceed 2.5 million.
The old rule limited the population of rural districts to 250,000, or 3%, of a state's population. The revised rule raises the rural district population limit to 1 million. Other provisions made it easier for single-common-bond and multiple-common-bond credit unions to add members.
In bankers' eyes, the rewritten field-of-membership rule "goes way beyond" anything envisaged for credit unions when the industry was founded and given its federal income tax exemption.
"If you look back, there were very specific reasons and limitations," Gesell said. "Now, that's all being blown away. … These latest proposals fly in the face of what credit unions were meant to be."
The decision to revive narrative charter applications surprised Keith Leggett, a retired ABA economist who authors a blog about credit union issues, because they proved susceptible to legal challenges in the past. Indeed, Leggett suggested legal vulnerabilities were the reason that the NCUA did away with the practice about a decade ago. "The agency was accused of accepting evidence that supported the applications and tossing out any evidence that did not," he said.
While it is predictable, perhaps, that bankers would see red over a proposal describing aggregations of 10 million people as well-defined local communities, Marc Schaefer, president and CEO of Truliant Federal Credit Union in Winston-Salem, N.C., labeled bankers' concerns "a tempest in a teapot."
"Field of membership is something Congress intended for NCUA to interpret," said Schaefer, whose credit union, then known as AT&T Family Federal, stood at the center of the landmark U.S. Supreme Court case that ultimately resulted in passage of the Credit Union Membership Access Act of 1998.
"This battle was fought a long time ago," Schaefer said. "It's not a productive use of resources. … The courts are not going to protect a whole segment of the market because that's what the bankers want."