FOM Rule Easing Makes Bankers Uneasy; Lawsuit Filed in Utah Conversions

ALEXANDRIA, Va.-In a unanimous decision, the NCUA Board passed a final rule designed to help credit unions broaden their field of membership during its March 2003 meeting. The regulation, which made sweeping changes to credit union FOMs and their chartering, provoked rumblings from the bankers about a potential lawsuit. In the final rule, one of the most notable changes is the addition of the TIP-trade, industry, and profession-FOM. A TIP permits a single common bond credit union to diversify its membership by adding persons from related trades, industries, or professions. For example, a healthcare TIP could serve all hospital staff or physicians’ offices in a certain area. NCUA did decide to maintain the geographic limitation and keep the TIP option solely for single common bond credit unions in the rule at this point. Additionally, the characteristics of a local community were significantly broadened. Any city, county, or smaller political jurisdiction, regardless of population, is automatically qualified as a local community. Additionally, 1) a metropolitan statistical area, or its equivalent, or a portion thereof, with a population under one million, or 2) multiple political jurisdictions with less than 500,000 residents, also qualify as local communities. An expansion to the definition of “reasonable proximity” among other things were included. The rule became effective May 15. The first TIP was approved in October for NW Preferred Federal Credit Union, serving the employees, independent contractors or self-employed persons who work regularly in the licensed insurance industry in Washington, Oregon or Idaho – meaning they or the entities for which they regularly work, are licensed to sell, underwrite or service insurance products. The $94 million credit union was originally chartered by NCUA in 1940 to serve employees of Farmers Insurance working in Portland, Ore. The credit union had no select employee groups. Now with the TIP charter, it can serve the needs of more than 100,000 insurance agents or agencies throughout Washington, Oregon, and Idaho. Also on the FOM front, the American Bankers Association filed a lawsuit against NCUA for its approval of the conversion of Tooele Federal Credit Union, and the subsequent conversions of America First and Goldenwest Federal Credit Unions, to community charters serving a six-county area as “arbitrary and capricious.” The three credit unions, plus the Utah League of Credit Unions, CUNA, and NAFCU were later permitted to intervene in the case. As intervenors, the parties have the legal authority to appeal a negative decision. While credit union parties initially felt the prospects of pushing a trial from either side were unlikely, the ABA has recently request that discovery be permitted in the case, which the defendants objected to as improper. Paul Lambert, of the Washington, D.C.-law firm of Bingham McCutchen, is representing the credit union side of the matter. Judge Dale A. Kimball of the District Court for the District of Utah Central Division is presiding over the case. -