Pennsylvania FOM Ruling Seen as States' Rights Watershed
"We're simply ecstatic," confided one credit union CEO after the Commonwealth Court of Pennsylvania in a 54-page opinion ruled in favor of the Department of Banking's approval of community FOM expansion for two Philadelphia credit unions.
For years. banking groups led by the American Bankers Association had opposed the FOM approvals as illegal under the NCUA's community charter definitions.
"This ruling is significant because it is the first time in all of the state litigation that the courts have addressed the 'well-defined local community' analysis employed by the banking department," said Rick Wargo, general counsel for the Pennsylvania Credit Union Association, which has led the litigation fight.
Credit union attorneys point out that banking groups could appeal the Commonwealth Court's Sept. 21 ruling to the Pennsylvania Supreme Court, but that is not considered likely since the high court had previously turned aside banker petitions for standing on the various complaints.
In its ruling, the Commonwealth Court upheld the FOM expansions granted by the banking department to Freedom Credit Union, Warminster, and TruMark Credit Union, Trevose, in 2003. The two sought to expand into five counties-Bucks, Chester, Delaware, Montgomery and Philadelphia, all within the Philadelphia metropolitan area.
In commenting on the ruling, PCUA noted that "the opinion addressed the evidence the credit unions presented to the department in support of their community charter notices."
It held, said PCUA, "that the evidence given by the credit unions supported the banking department's conclusion that the credit unions' notices contained evidence that the expansions constituted a 'well-defined local community.'"
James McCormack, PCUA president/CEO, said that "it has been a long hard battle but worth the cost to establish this type of precedent in the community chartering area for Pennsylvania credit unions."
Michael Edwards, counsel for special projects at CUNA, said the court ruling does provide new-found support for CUs and their regulators in other states regarding wildcard statues dealing with federal parity that are often subject to banker challenges.
While the court decision applies only to Pennsylvania CUs, the court's ruling represents "a persuasive precedent" to other states, said Edwards.
Edwards noted that not all wildcard statutes deal with FOM powers. A number of the state wildcard laws give parity for only for "powers"-such as making loans and accepting deposits-rather than field of membership, as Pennsylvania's statute does, Edwards said.
Like other CU attorneys, Edwards said the ruling does represent an important legal milestone for the industry, but there are other banker FOM challenges still in the courts, including one in a Kentucky court
That also involves FOM powers of six CUs in that state challenged on tax and common bond grounds. That case, brought by the Kentucky Bankers Association and an Ashland thrift, is slated to go before the Kentucky Supreme Court.