Justices Hear Credit Union Case
By Joan Biskupic
When a North Carolina credit union was set up in 1952, membership was primarily limited to workers of Western Electric Co. Today, mirroring a trend in credit union growth nationwide, membership includes employees at Duke Power Co., Black & Decker Corp., the American Tobacco Co. and a Coca-Cola bottler. Indeed, only about a third of the credit union's members are employees of AT&T Corp., the company that owned Western Electric.
That customer-building strategy, repeated across the country, has cut deeply into the banking industry's business, and in the first case of its new term, the Supreme Court heard arguments yesterday over whether federal regulators have wrongly allowed credit unions to expand their membership beyond the legal limits.
It's a high-stakes question on which billions of dollars could ultimately rest. And if the credit unions lose, it would swiftly derail what has been a central element of that industry's steady success in recent years its ability to meld into one credit union consumers who have little in common with the overall group.
With exemptions from state and federal taxes and freedom from some of the regulation over banks, credit unions traditionally offer customers lower fees and better interest rates. But banks argue that credit unions are enjoying the benefits of nonprofits while aggressively muscling in on the business of consumer banking.
Credit unions' assets total about $330 billion, and the federal government says about $132 billion is held in the kinds of unions at issue in the Supreme Court case those that draw membership from employees in many different occupations. The case before the court involves the National Credit Union Administration's interpretation of a Depression-era law that limits credit union membership "to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district." In 1982, responding to a recession, downsizing and the failure of small-company credit unions, the federal regulatory agency began allowing credit unions to accept groups of members in different companies and locations, as long as each new group that was added had its own "common bond."
Acting Solicitor General Seth P. Waxman, defending regulators' interpretation of the act, told the justices yesterday that Congress's overriding interest in the 1934 law was "strong and stable" credit unions that would help people with limited means get loans. By allowing many employers to band together, the government contends, credit union services reach businesses with too few employees to support a credit union by themselves. It also makes the industry stronger, because any single credit union becomes less dependent on the fortunes of a particular company or industry.
Before the justices, Waxman spent much of his time arguing that banks don't have a legal right to sue under the law because Congress did not intend to protect or to harm banks' interest with the "common bond" requirement. He said banks in the 1930s were ignoring the lower-to-middle-income people whom Congress wanted to help serve. John G. Roberts Jr., who argued on behalf of the AT&T Federal Credit Union yesterday, endorsed that interpretation.
The First National Bank and Trust Co. of North Carolina, the lead challenger in the case, contended that the law should be taken at its face value, requiring a "common bond" among all members, not a common bond among small member groups.
"Congressional intent is clear," said bank lawyer Michael S. Helfer, countering government arguments that the law at issue is ambiguous and that the court should defer to federal regulators. He asked the court to affirm a ruling by the D.C. Circuit Court of Appeals requiring all occupational credit union members to have a common occupational bond.
The justices spent most of the hour yesterday focused on whether Congress intended to affect banks in the legislation and whether they have legal "standing" to sue. While majority sentiment was not clear, Justice Anthony M. Kennedy said it would be a strange result if the group hurt most by a law today was not able to challenge it. A ruling in the case, National Credit Union Administration v. First National Bank & Trust, will be handed down sometime in the coming months.
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