Judge sides with NCUA in member business lending dispute

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A federal judge has dismissed the Independent Community Bankers of America’s lawsuit challenging a recent makeover of regulations governing credit union member business lending.

In a 29-page opinion issued Tuesday evening, Judge James C. Cacheris rejected one of ICBA’s key arguments, namely that the new member business lending regulation, which was approved by the National Credit Union Administration in March, contained enough changes to allow bankers to attack policies that had been in place for more than a decade, including one that permitted credit unions to acquire loans and loan participations made to nonmembers without counting them against the statutory cap that limits member business lending to about 12.25% of an institution’s assets.

The revised MBL rule eliminated a previous requirement that credit unions obtain a waiver from NCUA before purchasing nonmember loans or loan participations and ICBA argued this change allowed it to challenge the principle itself.

Cacheris ruled that the change was not a change, but rather a modification of existing practice. The regulation as written “serve[d] to reiterate and entrench the agency’s 2003 determination” that nonmember loans and loan participations are not member business loans, Cacheris wrote.

“Having reached this conclusion, it is not clear what remains of the plaintiff’s suit,” he added.

NCUA officials lauded the decision, with board member Mark McWatters calling it “a victory for small businesses throughout the country.”

“I supported NCUA's member business lending rule because it is legally permissible pursuant to the Federal Credit Union Act and the rendered decision today affirms that,” McWatters said in a press release.

The two major national credit union trade associations – the Credit Union National Association and the National Association of Federally-Insured Credit Unions – banded together in opposition to the suit, and the two groups released a statement late Tuesday praising the court's decision and taking one additional swipe at the bankers.

"Today’s decision is a clear message that NCUA acted well within its statutory authority when it issued its member business lending rule," said Dan Berger, president/CEO of NAFCU and Jim Nussle, president/CEO of CUNA. "The CUNA/League system and NAFCU applaud today’s ruling because it is a huge win for Main Street businesses which look to credit unions to secure much-needed access to capital. Perhaps the bankers should put more effort into serving their own customers instead of filing meritless lawsuits that only result in wasted time and money.”

ICBA Senior Regulatory Counsel Chris Cole expressed disappointment at Cacheris’ conclusion. “We’re studying the opinion and examining our options,” Cole said in a phone interview Tuesday.

ICBA’s suit, which was filed in September in U.S. District Court for the Eastern District of Virginia, isn’t the only legal battle NCUA is engaged in. Last month, the American Bankers Association filed suit in U.S. District Court for the District of Columbia challenging the legality of recently revised regulations governing credit unions’ fields of membership.

If the trade group does choose to appeal, it will likely face a significant hurdle. In his ruling, Cacheris noted that had the suit not been dismissed as a matter of procedure, he would have ruled against ICBA on the merits of the argument. Since credit unions are already making numerous member business loans as well as nonmember loans and loan participations, Cacheris noted that it is hard to see how they are harmed by a continuation of the practice.

“Credit unions were able to compete with banks in the commercial loan arena before the 2016 rule. Indeed, plaintiff represents that they have done so vigorously,” he wrote.

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Lawsuits MBL ICBA American Bankers Association NCUA NAFCU CUNA
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