The Independent Community Bankers of America's lawsuit unveiled Wednesday against the National Credit Union Administration was its first against the credit union regulator, but it appears unlikely to be its last.
The trade group challenged the NCUA's member business lending rules enacted in February, but also hinted that it is prepared to file another lawsuit should the agency move forward with a separate regulation that would expand credit unions' field of membership.
"NCUA is becoming more and more egregious in making absurd interpretations of statute to accommodate the credit union industry," Camden Fine, the ICBA's president and CEO, said in a conference call with reporters.
Banks have long charged that the NCUA acts less like a regulator and more like a cheerleader for the credit union industry, an allegation the agency and industry have dismissed.
But the banking industry has been particularly dismayed by the member business and field of membership rules.
In February, the NCUA amended its member business lending regulation so that loans and loan participations purchased from other lenders would not count against the cap, which is set to 1.75 times an institution's net worth or 12.25% of total assets, provided the borrowers were not members of the purchasing credit union.
Thomas P. Vartanian, ICBA's attorney, said such a rule violates the Credit Union Membership Access Act of 1998 that established the cap. It's "illogical" to permit credit unions to acquire an unlimited amount of loans to nonmembers underwritten by other lenders, but limit the loans it could make to its own members, he said.
The rule "gives credit unions carte blanche" to purchase outside loans and loan participations, Vartanian said during the conference call.
Fine said he expected a number of state-based banking trade groups to file amicus briefs supporting the ICBA's claim.
Vartanian, a partner at Dechert LLP in Washington, said that a decision in the suit, which was filed in United States District Court for the Eastern District of Virginia, could come relatively quickly.
"These kinds of cases don't usually have discovery," Vartanian said. "NCUA has 60 days to respond. We would move as quickly as we can to get a decision."
An NCUA spokesman declined to comment, stating that the agency was still studying the ICBA's suit.
But the member business rule may be just the ICBA's first target. The suit comes as the NCUA considers a separate proposal that would significantly expand its field of membership regulations. The plan would, among other things, allow credit unions to declare entire congressional districts as a well-defined local community, an idea that has drawn sharp criticism from banker groups.
The ICBA made note of the membership proposal in its press release announcing the suit, suggesting the group hopes the NCUA will give ground on the plan. But banking groups cannot sue the NCUA until the proposal is finalized.
For their part, credit union trade groups blasted the ICBA for pursuing a legal challenge.
"This suit raises to a new level the banking trade's campaign of misinformation and attempted intimidation in its effort to hinder credit unions' ability to serve their member small businesses," Dan Berger, president and CEO of the National Association of Federal Credit Unions, said in a press release Wednesday. "If the banks had put this much effort and money in policing themselves, maybe they could have helped prevent the financial crisis they caused that harmed consumers and our country's economy."
The Credit Union National Association said it was reviewing the complaint and will take whatever actions necessary to protect credit unions' interest.
"This baseless attack on the NCUA's rule ignores the law and the NCUA's authority in crafting regulations for credit unions," CUNA President and CEO Jim Nussle said in a press release Wednesday. "This lawsuit lacks merit, and is merely a self-serving publicity stunt to distract community bankers from the real issues that should be concerning them, namely the encroachment by large banks into the business of small banks and their resulting loss of market share."
Ironically, the Credit Union Membership Access Act was passed in response to a lawsuit the American Bankers Association and several community banks had filed against the NCUA after the agency began permitting credit unions to accept unrelated employer groups into their fields of membership.
Banks and credit unions have been fighting a seesaw battle over business lending ever since. During a 90-day comment period that followed the NCUA's unveiling of the member business lending regulation last year, the agency received nearly 3,100 comment letters, the majority from bankers angry about the planned changes.
According to the NCUA, member business loans by credit unions totaled nearly $62 billion as of June 30, a 14% year-over-year increase. The agency said the delinquency rate on member business loans stood at 1.49% of total business loans, an increase of 49 basis points from June 30, 2015.