Ruling Favors Banks over Credit Unions Supreme Court Says Federal Government Wrongly Allowed Credit Unions to Enroll Members beyond What the Law Allows

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The Supreme Court cut credit unions to size yesterday. It ruled for bankers in a turf battle with the depositor-owned financial institutions. by saying the government wrongly let credit unions enroll members beyond what federal law allows.

However, the 5-to-4 ruling is not expected to cause changes for most credit union customers. An official at the American Bankers Association (ABA) said only the biggest credit unions will be affected - those which have expanded well beyond the employees of their original corporate or industrial affiliation. The court sent its decision back to a district court to decide on remedies.

Credit unions came to the United States from Germany in the early 1900s. They were defined in Massachusetts as "a cooperative association formed for the purpose of promoting thrift among its members." Member deposits finance member loans. The justices threw out a 15-year-old government policy that has let credit unions accept millions of new members from outside traditional membership pools. That policy is contrary to Congress's intent as expressed in the federal law, Justice Clarence Thomas wrote for the court. However, legislation has been proposed in Congress to retroactively authorize such expansions in credit union membership. The bill, introduced in the House, already has 137 sponsors, notes Robert Kimmett, of the Massachusetts Credit Union League. Today's decision upholds a lower court ruling that the Clinton administration had said "threatens nationwide instability and losses in the credit union industry." Bankers have asked a lower court to force credit unions to drop millions of members who signed up during the last 15 years under the broader membership rule. …