A Tennessee banker is suing the National Credit Union Administration for permitting credit unions to accept deposits from outsiders.
Robert B. Murfree, president of Murfreesboro-based First City Bank, charged in his lawsuit that the practice is illegal and creates an uneven playing field.
The agency "has created a situation wherein entities identified by it as credit unions are exempt from the costs imposed by federal income taxation, while it extra-legally offers federal deposit insurance, to the competitive and economic detriment of banking institutions," the suit charges.
Filed in Tennessee
The suit was filed in the U.S. District Court for the Middle District of Tennessee on April 18. The initial case management conference is scheduled for May 31.
By letting tax-exempt credit unions accept deposits from nonmembers, the agency has created unfair competition with banks, the suit said.
Agency general counsel Robert M. Fenner said that credit unions were given authority to accept deposits from outsiders by Congress.
"What the plaintiff fails to appreciate is these are statuatory" powers, he said. "It doesn't make a whole lot of sense to me that they're suing us for something that Congress did."
Credit unions with a "low-income" designation are entitled to receive deposits from a wide range of institutions. Other credit unions can accept public unit deposits or deposits from other credit unions.
Under an agency regulation approved last Thursday, credit unions can accept nonmember deposits up to 20% of total deposits or $1.5 million, whichever is higher, without needing to get a waiver. Currently credit unions need a waiver for to accept deposits exceeding 20% of total deposits.
The suit asks that the agency "cease and desist its abuse of the Congressional taxation scheme, by prohibiting any individual credit union from accepting deposits from... entities ineligible for membership."
No credit unions are named in the suit and Mr. Murfree wouldn't comment on whether any single credit union's action precipitated the lawsuit.
"That will be borne out in the lawsuit as we present evidence," Mr. Murfree.
Mr. Murfree said he has notified the American Bankers Association and the Independent Bankers Association of America of his lawsuit.