The banking industry is poised to lose a case challenging the ability of community-chartered credit unions to serve huge chunks of a state or region.
The American Bankers Association and the California Bankers Association sued the National Credit Union Administration last October, arguing that the agency broke the law when it gave Point Mugu Federal Credit Union permission to serve all of Ventura County.
The county covers 1,800 square miles of Southern California and houses 670,000 residents-an area bankers argue is so big it cannot be a well- defined community as required by the Federal Credit Union Act.
The case has been on hold for months as Congress debated whether to overturn the AT&T Family Federal Credit Union decision in which the Supreme Court said occupation-based credit unions may not serve employees at multiple companies.
Congress approved that legislation, known as HR 1151, and President Clinton signed it Aug. 7. And while the law eases membership limits on occupation-based credit unions-as opposed to community-based institutions like Point Mugu-there are several provisions that apply to the entire industry.
The most important provision is a grandfather clause that prevents the courts from ordering a credit union to stop serving anyone who is currently within its field of membership.
Legal experts for both the credit union and banking industries said the grandfather clause is so broad that it protects community-based credit unions, such as Point Mugu.
Steven W. Widerman, a trial attorney at the National Credit Union Administration, said the agency has not yet decided how to proceed in the case. "We are going to examine the impact of the Credit Union Membership Access Act on this case and determine the extent it moots the case out," he said.
But other legal experts said the grandfather clause would make it impossible for the banking industry to force the NCUA to rein in Point Mugu or similar credit unions.
"Even if the bankers were to win Point Mugu it wouldn't matter because they couldn't get relief in the case," said Eric L. Richard, general counsel to the Credit Union National Association. "The grandfather clauses are broad enough to cover Point Mugu and any similar case that might be pending."
Michael F. Crotty, deputy general counsel for litigation at the American Bankers Association, conceded that the prospects for victory are bleak.
"It is fairly clear that people who have been admitted to Point Mugu through Aug. 7 will be grandfathered," he said.
However, Mr. Crotty said the industry, if it decides to proceed, could block Point Mugu from adding new members. "A fair case could be made that they are not eligible if we are correct that under the law the agency was not reasonable in its definition of community in this case," he said.
Mr. Richard, however, disputed the ABA's analysis, saying the grandfather clause protects anyone who is eligible to join an existing credit union.
Though the Point Mugu battle may be over, the banking industry's efforts to curtail community-based credit unions could be helped in the long run by the new law.
The new law, for the first time, requires the NCUA to limit the charters of future community-based credit unions to well-defined local communities. It also requires the NCUA to draft regulations to define "local." Congress will then have 60 days to review the rule and make changes.
But Mr. Crotty said he does not expect the agency to interpret the word narrowly. "Who gets to decide what the word 'local' means? It is NCUA," he said. "You think that is going to help us?"
