The credit union industry and its regulator swung into action Tuesday to fight a federal court order preventing thousands of occupation-based institutions from expanding.

The National Credit Union Administration on Tuesday asked U.S. District Judge Thomas P. Jackson to clarify his Oct. 25 order barring 3,586 federal credit unions from adding members who don't work for the businesses the organizations were chartered to serve.

On a separate front, the agency is working on new rules that would mitigate the court order by allowing credit unions to accept more members.

No matter what happens in the courts or with his agency's new rules, NCUA Chairman Norman Amours said he will ask Congress to change the credit union charter next year so one institution may serve many unrelated companies.

"NCUA is considering seeking legislative action and is reviewing its current regulations and policies to determine any possible avenue to lessen the detrimental impact of the order," Mr. D'Amours said in a letter Monday to all federal credit unions. The letter, co-signed by NCUA Vice Chairman Shirlee Bowne and Director Yolanda Wheat, states the agency will "pursue all legal means" to overturn the ruling, including an appeal to the Supreme Court.

The industry's trade groups are gearing up, too. The National Association of Federal Credit Unions established a legal defense fund Monday while the Credit Union National Association has launched "Operation Secure," a grass roots effort to preserve the occupation-based credit union charter.

On Tuesday, the NCUA asked Judge Jackson to clarify his order, including: whether a credit union may add new members when its original sponsor acquires another company; whether a credit union may continue enrolling members from all the companies it serves; and whether all employee groups accepted more than six years ago may continue to be served. (Six years is the statute of limitations for challenging credit union expansions.)

For now, the NCUA said, it will bar credit unions from adding new members in any of these three situations.

Judge Jackson ordered the NCUA, the American Bankers Association, and the four North Carolina banks that filed the lawsuit to appear in court Thursday to discuss NCUA's three questions.

NCUA is already at work on new rules that could provide relief for some occupation-based credit unions, according to agency spokesman Robert Loftus.

The proposal would allow a credit union to serve all people who work in a particular occupation, rather than at a particular business. For example, a credit union could serve all medical workers in the market rather than all the employees at a particular hospital.

The proposal also would permit a credit union to serve any employee within a corporation, even if it was chartered to only serve a particular subsidiary.

Finally, the plan would make it easier for institutions to avoid restrictions on their membership by qualifying as a community credit union.

Mr. Loftus said the agency's staff is expected to present the proposal to board within the next few weeks.

The NCUA's legal troubles began July 30 when the U.S. Court of Appeals for the District of Columbia Circuit ruled that the agency violated the law when it allowed AT&T Family Federal Credit Union to accept members from more than 150 unaffiliated companies. The appeals court said credit unions may serve only members who share a common bond. Judge Jackson, a U.S. district court judge acting at the request of the appellate court, ordered the NCUA on Friday to comply with its decision.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.