HARRISBURG, Pa. – Credit unions in Pennsylvania last week got the long-awaited news they were hoping for to the bankers' challenges to the community charters Secretary of Banking William Schenck granted to TruMark Financial CU and Freedom CU in 2003. In the order filed on March 1, the Commonwealth Court affirmed by a 9-0 vote the Dec. 22, 2004 Orders of the Secretary of Banking and dismissed the banker FOM challenges, allowing the community charters to stand. Both credit unions had previously had select employer group fields of membership. Schenck approved both of their applications to convert to community charters to serve individuals in a five-county area in southeast Pennsylvania including Philadelphia, Bucks, Montgomery, Delaware and Chester. A separate challenge by the bankers to Corry Jamestown CU's community charter was withdrawn earlier by the bankers and approved by the court Feb. 28. In response to banks' assertions that the CUs' FOM expansions threatened their competitive opportunities, the court stated that the banks "did not show causation of harm to their interests occasioned by the expansion of Credit Unions' membership fields, despite an opportunity to do so." A second challenge brought by the bankers and being considered by the court concerned CUs' tax-exempt status. The court upheld many of the objections raised by the Department of Banking, Pennsylvania Credit Union Association, Freedom CU and TruMark CU. In the opinion, the court wrote, "The core issue is whether, because of favorable tax status, credit unions which convert from group-based to community-based membership obtain an unfair competitive advantage over banks." The court further stated that in the banks' original jurisdiction components of their petitions for review, the banks asserted that two provisions of the current credit union code were invalid because they violate Article VIII, Sections 1 (uniformity of taxation), 2 (exemptions and special provisions), 5 (exemption from taxation restricted), and 6 (taxation of corporations) of the Pennsylvania Constitution. In releasing its summary, the court overruled the banks' challenges. However, the court also asked for more information about the distinction between banks and credit unions. The Pennsylvania Credit Union Association said it will be working with the Department of Banking and the CUs to respond to the court's request for additional information. In their challenge, the bankers asserted that the new fields of membership did not meet the criteria of "well-defined local communities" as required by state and federal laws. Pennsylvania Credit Union Association's Mike Wishnow, senior vice president communications and marketing said the court's decision "is positive for Pennsylvania consumers and credit unions. It reaffirms that the Department of Banking's process was both valid and appropriate and the reasoning it used in granting the community charters was sound." Although Pennsylvania credit unions were hopeful the court would rule in their favor, it was never a certainty. Secretary of Banking Schenck acknowledged, "This was a tough case." He stated that, "The Department regulates a wide array of entities and we work hard every day to ensure that none is disadvantaged in servicing Pennsylvania consumers. In this case, the law was clear and the Banking Department followed the law." Schenck explained that in 2002, Pennsylvania enacted legislation that granted state-chartered CUs the same powers as federal credit unions, and the Department of Banking applied standards used by federal regulators in reaching its decision to grant the community charters. CUNA's General Counsel Eric Richard said, "The unanimous decision by the appeals court in Pennsylvania, the Commonwealth Court, should be welcome news to the credit union movement. Since Pennsylvania law incorporates federal standards on what constitutes a well-defined local community, this decision is good news for credit unions throughout the country. Of course, it remains to be seen if the other side chooses to appeal this ruling, in which case the state Supreme Court will review the decision. However, given that all of the complaints dealing with field of membership were dismissed, we believe we have a strong position should an appeal be carried out." On the issue of whether the bankers would likely appeal the case to the state Supreme Court, Wishnow said they could if they want, but the Supreme Court would first have to agree to hear the case, "and that's not a done deal." Wishnow said, "The message to bankers from the outcome of this case is clear. The regulator – state or federal – has unique jurisdiction over matters concerning credit unions and the bankers really have no standing trying to intervene in that process which rightly should be decided by the regulator. That's been our position from the get go." Wishnow said both TruMark CU and Freedom CU have been adding members since their respective community charters were approved. TruMark CU has approximately $775.3 million in assets and more than 75,000 members; Freedom CU has about $273.5 million in assets and more than 47,500 members. -

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