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ARLINGTON, Va. – All appearances of confusion notwithstanding, a senior CUNA official defended the way the association has handled its role in a controversial financial industry suit to overturn a California credit card disclosure law. Now both CUNA and NAFCU, along with other banking trade associations and several nationwide credit card issuers have joined forces in an attempt to convince a U.S. District Court that federal law pre-empts the California statute and that the measure violates the interstate commerce clause of the U.S. Constitution. “I think the way the case has proceeded so far validates our strategy,” said CUNA General Counsel Eric Richard, speaking of the association’s legal approach, but Richard agreed that the association’s effort to explain what it was doing might have confused some people outside the group. CUNA initially held back from participating in the suit because, it first said, it didn’t want to further strain relations with the major consumer protection organizations. The Consumer Federation of America (CFA) and other groups supported the California law and had been unhappy with credit union support for pending federal bankruptcy reform. The CFA praised the association for its refusing to join the action. But later CUNA said that it decided to refrain from getting involved in the suit because the pending federal bankruptcy reform legislation contained provisions with consumer protections similar to the California law. CUNA did not want to in any way compromise the federal bankruptcy reform effort by appearing to oppose a state law similar to a federal law it supported. Regardless of the reason for its restraint, Richard said the judge’s decision to stay the law’s enactment until he made a decision on November 8 vindicated CUNA’s initial decision to allow the other plaintiffs to file the measure. The decision to stay the law was good for the credit unions with cardholding members in California, Richard said, and deciding not to enter the suit had allowed the association to shield some of its strained consumer relations and guard some of its congressional priorities. But the details of Federal District Court Judge Frank Damrell’s decision to stay the law’s implementation until both sides provided more information, and some of the specific questions the Judge asked, alerted CUNA that it could no longer wait out the legal fight, Richard explained. Specifically, the Judge’s questions, which he addressed to both sides, about whether the Court could accept the plaintiff’s federal pre-emption argument and deny the argument based on interstate commerce let CUNA know that all credit unions might not be equally at risk in the case. Without its involvement, Richard explained, CUNA feared its state-chartered credit union members lacked a voice in the fight. CUNA was also concerned that the Judge’s question about whether he could just exempt the plaintiffs from the law and allow the law to go into effect made it additionally more important to take a part in the case, Richard added. The case had a deadline of July 20, before which it was easy to join the action as a plaintiff and after which it would become much more difficult, CUNA has said previously. Richard specifically denied that any pressure from its federally chartered members who might have been unhappy the association decided to sit out the case played any role in the decision to get more involved. Most of the feedback he received about CUNA’s position in the case had praised the association for not getting involved, Richard said. Richard said it “would not be unusual at all” for Judge Damrell to split his decision and accept the federal pre-emption argument but deny the interstate commerce challenge. In general, Richard explained, the federal pre-emption argument is easier to make and stands a greater chance for being accepted. In that line of argument the legal opinions of the Office of the Comptroller of the Currency (OCC) and NCUA are taken into account and they bring a certain weight to the case, he said. But success in the interstate commerce argument will require the plaintiffs to show the court how the law will unduly burden their credit card operations and what the cost to their members will be, Richard said. Gathering information in that level of detail meant that the plaintiffs needed CUNA’s help since they did not have the necessary access to credit unions who have that information, he explained. Pat Keefe, CUNA’s vice president of communications and media outreach stressed that CUNA had thought hard about both its decision to initially sit out from the suit and then the decision to get involved. “It’s always easy to make judgments from the outside, but it’s not like we just took a position willy-nilly,” he said. Since the passage of H.R. 1151, a major piece of legislation, CUNA had become very aware of how its actions in one area could have impact in other areas, he said. Richard said he didn’t know what costs might accrue to the association for its involvement in the measure, but he “understood that there would be some.” Richard could not speak to the rumor that the VISA card association had been backing the financial costs of the suit, a rumor that an official at one the banking associations had confirmed off the record, but he said that, as of now at least, CUNA would be expected to pick up part of the cost. He would not speculate on whether VISA had decided to back off its early complete support for the suit. Richard also declined to speculate on the possibility either side would take the case to appeal if the court declined to take all or part of its argument. “I haven’t been to enough meetings on the case yet to know what the other counsel have in mind about the that,” he said. The California law requires financial institutions that issue cards to Californians to either require them to pay off 10% of their balances each month or face extensive disclosure and communication requirements. [email protected]

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