The National Credit Union Administration was expected this week to try to quash a lawsuit challenging credit unions' right to accept deposits from nonmembers.

The federal regulator is arguing that First City Bank, Murfreesboro, Tenn., lacks standing to sue. That's the same argument NCUA has used -- unsuccessfully, so far -- in suits filed by bankers over credit union customer-base expansions.

Still, NCUA staff attorney Steven Widerman said Tuesday that he expects the U.S. District Court for the Middle District of Tennessee to grant the agency's request. He wouldn't elaborate.

Cites Congressional Action

If the court does allow the bank to sue, the NCUA should win on the merits, he said, because Congress authorized credit unions to accept public unit deposits and deposits from other credit unions.

Credit unions designated as "low-income" can receive deposits from a wide range of institutions.

"The bank is alleging that credit unions can't accept non-member deposits, as if this is something NCUA dreamed up in the middle of the night," Mr. Widerman said. "This is a power that Congress expressly granted in the Federal Credit Union Act."

The suit, filed April 18, contends that by letting tax-exempt credit unions accept deposits from outsiders, the agency created unfair competition for banks.

Rodney Scott, a lawyer for First City, acknowledged that Congress gave credit unions that right. But, he said, "We feel it's been taken beyond what congressional intent was."

Expansion Seen at Root

No credit union was named in the bank's suit, but sources said it was spurred by Tullahoma-based AEDC Federal Credit Union moving a branch into Murfreesboro.

Last year, $428 million-asst AEDC Federal grew 23.8% to $412.6 million, making it one of the fastest-growing credit unions in the country.

Mr. Widerman said the fact that the suit did not cite a specific credit union distinguishes it from other banker lawsuits over expansions.

"There's no allegation this bank was injured by a chartering decision," he said.

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