The banking industry may have trouble proving that the National Credit Union Administration broke the law when it gave Point Mugu Federal Credit Union permission to serve all of California's Ventura County.

That's the conclusion of lawyers who are experts on the Federal Credit Union Act.

The American Bankers Association and the California Bankers Association filed suit against the government agency on Oct. 6 in U.S. district court in Washington for approving Point Mugu's conversion from an occupation- based institution to a community charter.

The NCUA is expected to respond to the suit in early December, and a judge could hear arguments by spring.

Legal experts warn that this case is substantially different from the industry's so-far-successful challenge to membership practices of occupation-based credit unions and will be much harder to win.

"I don't think it is very likely the bankers will succeed," said Steven Bisker, an Alexandria, Va.-based lawyer and former NCUA general counsel.

"The banks will lose in this case," said another lawyer who does work for both credit unions and banks. "The bankers don't have the same argument as with the occupation case."

The biggest hurdle facing banks is the fact that the NCUA has consistently defined "community." The Federal Credit Union Act says community chartered institutions must serve a single "well-defined neighborhood, community, or rural district."

The agency has interpreted the law to mean that these institutions may serve a "single, geographically well-defined area where residents interact," including political jurisdictions, census tracts, and areas covered by a major newspaper. This deprives the bankers of the argument they have successfully used to battle AT&T Family Federal Credit Union in the occupation-based suit-namely the NCUA's view that those credit unions may serve multiple companies.

"The big difference with AT&T is NCUA reversed course in 1982 to permit multiple employee groups," the lawyer who serves both industries said. "That is what got credit unions in trouble. They did not have consistent interpretation from the beginning of time."

The banking groups are trying to get around this roadblock by claiming that Ventura County consists of multiple, independent communities. But Mr. Bisker said the bankers are misinterpreting the law.

"NCUA has said the community needs to be a single, well-defined geographical area that is recognized by looking a various factors," Mr. Bisker said. "That doesn't mean that there cannot be communities within the community."

Finally, the NCUA will win the case if the Supreme Court rules that banks lack the legal right to challenge occupation-based credit unions. This so-called "standing" argument was the government's primary defense in the AT&T Family case, which the justices are expected to decide early this winter.

Banking industry lawyers dismiss these concerns. Michael F. Crotty, the ABA's deputy general counsel for litigation, said the NCUA has a serious credibility problem that will hurt its case. He noted that a federal judge last year called it a "rogue" agency and the government is investigating its hiring practices.

"Do you believe the National Credit Union Administration? Do you believe the Securities and Exchange Commission? Do you believe the Federal Reserve Board? I don't think the answer is the same for all three. I don't remember federal judges saying (Fed Chairman) Alan Greenspan runs a dysfunctional agency or saying the head of the SEC is a rogue regulator."

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