ABA Lawsuit Forces NCUA to Curb Underserved Area Adoption; Community Charter Case Still Pending
WASHINGTON -- One lawsuit brought by the American Bankers Association late in 2005 ended with non-multiple common bond credit unions being unable to adopt underserved areas and another, challenging NCUA's judgment of "well-defined community" is still awaiting a decision.
Early on in 2005, a Utah court stripped America First Federal Credit Union of its six-county community charter due to a lack of evidence of community, but NCUA subsequently approved the adoption of several underserved areas by America First that allowed the credit union to regain most of the area it had lost. The ABA then sued NCUA in the same court later that year based on statutory language that specified that multiple common bond credit unions, a new phenomenon from H.R. 1151, could adopt underserved areas, but left the authority for other charter types unclear in the law.
Congressman Paul Kanjorski (D-Pa.) had inserted into the record in the debate over the Credit Union Membership Access Act, "By including explicit language authorizing multiple group credit unions to include underserved areas in their field of membership, we are not in any way restricting the ability of the National Credit Union Administration to allow community and single group credit unions to include underserved areas in their fields of membership."
Still NCUA backed away from its earlier decision and took the underserved areas away from America First and placed a moratorium on non-multiple common bond credit unions adopting underserved areas Dec. 30, 2005. The agency filed a motion to dismiss the case as moot. The judge granted a stay until NCUA cleared a final rule codifying the moratorium, which it did over loud opposition from the credit union groups. CUNA Deputy General Counsel Mary Dunn wrote in a comment letter at the time, "There is absolutely no good public policy reason to change NCUA's current policy on service to underserved areas. Thus, we urge and support NCUA's efforts to mount every reasonable legal defense whenever possible as appropriate in order that all federal credit unions have the right, as they unquestionably should, to include underserved areas."
However, she added, "[W]hile its proposed policy is abhorrent, CUNA recognizes that NCUA has little, if any, flexibility to pursue any other course of action." However, ABA Senior Economist Keith Leggett called NCUA's proposal "a very small step in the right direction. We respectfully submit, however, that the proposed amendments do not go far enough. The [NCUA] can and should do more to curb abuses by certain credit unions that illegally exploit the 'underserved' exception not out of a desire to help those in need of financial services but as a pretext to expand beyond the legal limitations of their permissible field of membership." The NCUA Board, over Vice Chairman Rodney Hood's objection, eventually passed the final IRPS (06-1), which limited underserved areas to multiple common bond credit unions, though not retroactively as ABA requested; over 200 community chartered credit unions that had previously adopted underserved areas could have been impacted. Additionally, federal credit unions adopting underserved areas must place a physical presence there within two years, but not manned as was proposed. ABA dropped its suit.
NCUA and the credit union trades have already been at work to move legislation through Congress to permit all federal credit unions to adopt underserved areas. There is talk of adding a provision to the Credit Union Regulatory Improvements Act and introducing it as a stand-alone piece of legislation.
The case involving the community charter approved for Members 1st Federal Credit Union in Pennsylvania makes the same argument against NCUA's interpretation of a well-defined community as in the original America First case, but the credit union parties involved have said the facts in the case are entirely different. Additionally, Members 1st has relied on NCUA's decision for a few years now and invested heavily in expanding out to serve the entire community granted, the credit union has said.
ABA argued that NCUA relied on outdated local government information and disregarded the three separate cities, 90 boroughs, 140 townships and 214 local authorities that make up the area. NCUA has defended it decision, as have the credit union trades and the credit unions approved for the same community.
Both sides have briefed the case and now all the parties can do is wait for the judge's next move either in the form of a decision, further briefs, or oral arguments. --firstname.lastname@example.org