Bankers say credit union members shouldn't be booted
By Jan Lindsey • Bankrate.com

Bankers have filed court documents to shore up their public position that no member of a credit union should be expelled as a result of a recent Supreme Court ruling limiting credit union membership.

"We decided if it was going to take an amendment to put people's minds at ease we would do it,'' said Virginia McGuire, spokeswoman for the American Bankers Association (ABA). "We thought it best to make it official in the minds of the public.''

"It's about time,'' said Brenda Furlow, deputy counsel for the Credit Union National Association (CUNA). "We'd been asking them repeatedly to clarify their position on whether they would be seeking to kick out existing members of credit unions."

Court ruled membership guidelines too broad
The Supreme Court ruled last month that the National Credit Union Administration (NCUA), which charters, regulates and insures federal credit unions, had misinterpreted the Federal Credit Union Act of 1934 when it allowed credit unions to add outside groups to their field of membership. Bankers had filed suit claiming that credit unions had overstepped their bounds.

The high court ruled that the act required a federal credit union to limit membership to those belonging to its core charter group. Credit unions had been adding outside groups since 1982 when the NCUA changed its regulations, and there were immediate concerns as to the fate of those who had obtained credit union membership under the relaxed policy.

Now that the Supreme Court has ruled, the case goes back to the lower court where an injunction is currently in place banning credit unions from adding new non-core groups.

Banking trade groups filed the amendment
Three banking trade associations, the ABA, the Independent Bankers Association and America's Community Bankers, amended the complaint March 10. In part, it asks a U.S. District Court judge to grant just and reasonable relief "but in no event requiring any member to be expelled from his or her credit union."

In the meantime, credit unions have taken the battle to Congress. Legislation is being considered that would amend the law to allow federal credit unions to add multiple groups as long as members of each individual group shared a common bond. Hearings on the bill, H.R. 1151, were under way before the House banking committee March 11. Support for the bill strengthened after the Supreme Court ruling.

Six banking trade groups last week proposed a legislative compromise that would see large credit unions facing the same taxation and Community Reinvestment Act (CRA) obligations as banks. All credit unions are currently exempt.

Banks seek even more regulation of credit unions
The proposal calls for federal credit unions with occupational and community charters to retain their exemptions if they hold limited assets handle no commercial loans or deposits and have members with a single common bond.

The definition of single common bond for community credit unions would be tightened under the proposal, and all community credit unions, regardless of whether they meet the criteria for exemptions, would be subject to CRA requirements.

Occupational credit unions that now incorporate unrelated groups would be grandfathered and allowed to keep their current members.

Credit unions set up solely to serve low-income neighborhoods would remain exempt.

Those credit unions no longer exempt would be subject to federal taxation, removal of an exemption from state taxation, and CRA requirements.

The cut off for "limited assets'' remains negotiable, McGuire said, but bankers used assets of $25 million as a threshold in their discussions and working papers.

-- Posted: March 11, 1998