High Court Limits Credit Unions' Membership Range
By Joan Biskupic
The Supreme Court ruled yesterday that individual credit unions cannot broadly draw members from a variety of occupations. The decision upsets long-standing federal policy and could significantly limit consumer options and the ability of credit unions to compete with banks.
By a 5 to 4 vote, the court said regulators wrongly interpreted a Depression-era law and permitted federally chartered credit unions to enroll millions of workers in different companies and locations. The long-awaited ruling in the case that was argued on the first Monday in October -- the first day of the current court term -- immediately sparked a battle in Congress over legislation to revise the 1934 statute. At stake, according to the Justice Department, is more than $100 billion held in certain credit unions.
It is unlikely, however, that any credit union customers will be forced out or will see an immediate change in service. The American Bankers Association, which helped bring the case, has withdrawn an earlier demand that credit unions get rid of the 20 million members who signed up under the liberal membership policy. (Overall, 70 million people belong to federal credit unions nationwide.) But the growth of some credit unions will be stunted, and their officials predicted they will scale back marketing and technology efforts undertaken to compete with local banks.
As quickly as the ruling was announced yesterday, banking and credit union lobbyists pounced on Capitol Hill, where legislation is pending to allow individual credit unions to serve a broad clientele. The fight will be over who can join the nonprofit, tax-exempt cooperatives that tend to offer lower fees and better rates on loans. But some banking officials have vowed also to renew their opposition to credit union exemptions from the federal regulation and taxes imposed on banks.
Rep. Steven C. LaTourette (R-Ohio), lead sponsor of a bill to expand credit unions, noted that the law bars people who work for companies with fewer than 500 employees from forming their own credit unions, and those workers would be unable to join with other small companies to create a cooperative offering deposit and lending services.
"The bulk of the American economic engine is now in [companies] with less than 500 employees. We're not talking about big steel companies anymore," LaTourette said.
House Speaker Newt Gingrich (R-Ga.) endorsed the legislation, saying, "I believe in community-level activism. I believe in local folks helping local folks."
But Edward L. Yingling, lead lobbyist for the American Bankers Association, said, "We hope that the Congress will not be stampeded."
"Credit unions are making millions of dollars and they don't pay any federal taxes. When they start acting just like banks . . . they ought to grow up and pay their fair share of taxes," he said.
But he also said the bankers' position is "not to seek any remedy that would require any current customer to lose his or her account."
While Congress created the cooperatives to provide services to low-income people whom banks were ignoring, credit unions over the decades have expanded their clientele and services, and flourished.
The 1934 law says credit unions must be limited to groups with a "common bond" of occupation, association or geographical area. In 1982, responding to company downsizing and a recession, the National Credit Union Administration said that as long as each of the smaller groups within a credit union shared a common employment bond, the condition was met.
In yesterday's case from North Carolina, five banks and the American Bankers Association argued that the law means the same bond of occupation has to unite every member. The banks were protesting a cooperative that originally was limited to workers of Western Electric Co. (owned by AT&T Corp.) and had expanded to employees at Duke Power Co., Black & Decker Corp., the American Tobacco Co., a Coca-Cola bottler and others.
The Justice Department, representing the credit union administration, had tried to stop the banks' case altogether by arguing that they lacked "legal" standing to sue because the law was not intended to affect banking interests, either by protecting or harming them.
On that threshold question, Justice Clarence Thomas wrote for the court yesterday that the banks' interest in limiting the markets that credit unions can serve falls within the scope of the statute, so they have standing to sue.
The dissenters -- Justices Sandra Day O'Connor, John Paul Stevens, David H. Souter and Stephen G. Breyer -- disagreed on the standing issue and didn't reach the merits of the case. The statute, O'Connor wrote, is not concerned "with protecting the business interests of competitors."
On the merits, the majority said the "common bond" requirement is not satisfied when employees of unrelated companies are joined in one credit union.
In affirming a decision by the appeals court for the D.C. Circuit, Thomas wrote, "Congress has made clear that the same common bond of occupation must unite each member."
Joining him in the majority in National Credit Union Administration v. First National Bank & Trust were Chief Justice William H. Rehnquist and Justices Antonin Scalia, Anthony M. Kennedy and Ruth Bader Ginsburg.
Staff writer Michelle Singletary and staff researcher Ben White contributed to this report.
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