High Court Will Hear Challenge to Credit Unions
By Joan Biskupic
In a case of great interest to consumers and to the credit unions and banks that hold their money, the Supreme Court agreed yesterday to decide who may join federally chartered credit unions.
Credit unions, which are tax-exempt cooperatives and subject to less regulation than banks, typically offer customers lower fees and better interest rates. And while their membership traditionally encompassed limited groups of people in a workplace or in a community, federal regulators in 1982 allowed them to branch out, diversify their membership and include groups from different employers.
Recent lower court rulings have, however, put new restrictions on credit union membership. The federal government, in urging the high court to take the case, told the justices that the limits "threaten the survival" of the nearly 3,600 credit unions serving 32 million people across the country.
The justices will hear the closely watched case which will affect the financial services available to millions of workers and the viability of credit unions as a business in the fall. A decision is likely by the summer of 1998.
In the aftermath of the Great Depression, Congress passed the Federal Credit Union Act in 1934 to help make money available for loans to people of limited means. The act limited membership in a federal credit union to "groups having a common bond of occupation or association or to groups within a well-defined neighborhood, community, or rural district."
In 1982, the National Credit Union Administration, responding to massive company downsizing and a changing financial picture for company credit unions, adopted a policy permitting the establishment of credit unions consisting of "multiple occupational groups." The NCUA construed the statutory phrase "groups having a common bond of occupation or association," to allow more than one group to join together in a single federal credit union as long as a "common bond of occupation or association" existed for all the members of each group.
That enabled weaker credit unions to be merged into healthier ones. But as credit unions came to encompass dozens of unrelated companies, banks felt greater competition.
The case before the court began when the AT&T Family Federal Credit Union in North Carolina began serving customers not employed by AT&T Corp. Four North Carolina banks and the American Bankers Association sued the NCUA.
A federal district court ruled that the NCUA's interpretation of the law was a reasonable reading of an ambiguous statute. But the U.S. Court of Appeals for the D.C. Circuit reversed that, saying the law requires all occupational credit union members to have an occupational bond and forecloses the possibility of employees from an unaffiliated company from joining another company's credit union.
The full effects of the lower court decisions have been postponed because of the government's pending appeal, and the courts have allowed credit unions to continue signing up members from unrelated companies already being served. However, the unions cannot solicit new companies that have no "common bond."
In its appeal, the NCUA asserts that its interpretation of the statute is valid and says that the lower court should have deferred to its view. The federal government also challenged banks' legal standing to sue over the credit union regulation.
Bank lawyers assert that if the NCUA's interpretation is allowed to stand, anyone who has a job with any employer could join the same credit union. The consolidated cases are National Credit Union Administration vs. First National Bank & Trust Co. and AT&T Family Federal Credit Union vs. First National Bank & Trust Co.
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