Magazine article American Banker

NCUA's Consistency Is Conversion Suit Defense

Magazine article American Banker

NCUA's Consistency Is Conversion Suit Defense

Article excerpt

The banking industry may have trouble proving that the National Credit Union Administration broke the law when it gave Point Mugu Federal Credit Union permission to serve all of California's Ventura County.

That's the conclusion of lawyers who are experts on the Federal Credit Union Act.

The American Bankers Association and the California Bankers Association filed suit against the government agency on Oct. 6 in U.S. district court in Washington for approving Point Mugu's conversion from an occupation- based institution to a community charter.

The NCUA is expected to respond to the suit in early December, and a judge could hear arguments by spring.

Legal experts warn that this case is substantially different from the industry's so-far-successful challenge to membership practices of occupation-based credit unions and will be much harder to win.

"I don't think it is very likely the bankers will succeed," said Steven Bisker, an Alexandria, Va.-based lawyer and former NCUA general counsel.

"The banks will lose in this case," said another lawyer who does work for both credit unions and banks. "The bankers don't have the same argument as with the occupation case."

The biggest hurdle facing banks is the fact that the NCUA has consistently defined "community." The Federal Credit Union Act says community chartered institutions must serve a single "well-defined neighborhood, community, or rural district."

The agency has interpreted the law to mean that these institutions may serve a "single, geographically well-defined area where residents interact," including political jurisdictions, census tracts, and areas covered by a major newspaper. This deprives the bankers of the argument they have successfully used to battle AT&T Family Federal Credit Union in the occupation-based suit-namely the NCUA's view that those credit unions may serve multiple companies. …

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