New FOM Law has Some N.D. CUs Questioning the League's Competency

BISMARCK, N.D. – The state’s new field of membership law, enacted in March and dubbed a compromise measure to forestall litigation by the banking lobby, is now at the center of a bitter feud within the North Dakota Credit Union League. “This is just a disastrous piece of legislation-bad for consumers and rural North Dakota,” declared the most vocal opponent of the FOM law, Denton Zubke, president/CEO of the $45 million Dakota West CU of Watford City. Zubke, who like a group of four other small CUs are resigning from the League and also considering switching to federal charter or even a mutual savings bank charter, charges the FOM law sets an impractical 75-mile branch limit from a CU’s home office. In the past the state Credit Union Board allowed CUs to expand, in some cases, an additional 50 or 75 miles from new branches in a “leapfrogging” procedure which the bankers claim is an over-reach of the law. Bankers argued before the panel that CUs were branching “hundreds of miles in each direction.” The wrangling before the state CU Board has gone on for years but the boycotting CUs call “a serious mistake” provisions in the new law granting bankers formal standing to challenge FOM expansions in the future. The FOM law becomes effective Aug. 1 affecting the 38 state-chartered CUs. “This is a total mess for credit unions and will have implications around the nation,” forecasts Zubke. “CUNA and Affiliates should have been in here fighting this. Isn’t this what they get paid to do?” The leadership of the 53-member League has countered the law is workable and while not ideal would have prevented lawsuits in a repeat of Utah’s marathon – and costly-court/legislative battles with the Utah Bankers Association and its affiliate, the American Bankers Association. The chairman of the League, Tim Brown, who also is president/CEO of Dakota Plains CU in Edgeley, has acknowledged the sharp divisions over the FOM law but maintains the trade group “is now moving forward.” He declined to discuss the Zubke group complaints, but a spokesman for CUNA said the national trade group was not asked to come to North Dakota to join a lobbying effort regarding the law as it has in other states involving banker attacks. CUNA Not Called Into Fight A CUNA spokesperson said CUNA’s focus is on the national level, and it will not get involved unless asked to. This contradicts what some sources have described as a covert “quick-strike” task force CUNA has formed to go into states where banker trouble is brewing. CUNA’s top legal and government staffers have been asked repeatedly over the years to join the Utah fray and were in Salt Lake City during the height of the fight over the anti-CU resolution to Congress adopted by the state legislature in December. A CUNA team was also in Utah in 2003 when the ABA and UBA filed suit against NCUA over the so-called “six-county” FOM expansion by a group of four Utah CUs later rejected by a Salt Lake federal judge. In North Dakota, CU opponents-including those in the dues boycott-maintain the League Board acted too quickly in what they say was a capitulation to desires of the North Dakota Bankers Association to put to rest the continuing disputes over FOM rulemaking before the CU Board. “The idea of giving bankers standing in the law is something that I did not favor since it gives them a chance to let them in,” commented Darrell Roos, president/CEO of the $50 million Northern Tier FCU of Minot. Though holding a federal charter, his CU is not directly impacted by the law, but Roos said he felt strongly enough about the League Board action that he withheld his 2005 dues but has since paid them “since the League Board has listened to me.” “They earned my dues,” for now he said, though there are changes in League management he would like to see accomplished over the year. He declined to elaborate. In February the policy differences within the League on how to confront banker demands for an FOM law prompted the resignation of Deb Mathern, co-chairman of the League’s Government Affairs Committee who has stopped paying dues on behalf of the Fargo Public Schools FCU. She is president/CEO of the $16 million CU. Mathern, a former state legislator who ran unsuccessfully for lieutenant governor last November, accused fellow board members of failing to stand up to the NDBA and “folding like a cheap card table” rather than “standing our ground and saying enough.” As a non-member, she said her CU would be moving its check processing services to the Federal Reserve Bank of Minneapolis and its card business to Visa USA. Regarding banker standing, Brown, the League chairman, in countering criticism from the boycott group maintained the League relied on advice of sound, legal counsel before proceeding. The issue of banker standing has come in for differing interpretations before the U.S. Supreme Court so it has been a matter for open discussion, he said. And on CUNA involvement, he said the staff had been in touch with Washington but on this there was consensus to reach a compromise adding, “there are always two sides to an issue. Don’t the opinions of the 47 other dues paying members mean anything?” Credit unions in the dues boycott group maintain the impact of the law will hit remote, rural areas the hardest. Under the statute, CUs are still able to merge and add new members 75 miles from the acquired CU’s main office but would still lack flexibility in reaching members in small towns just beyond the 75-mile limit. Previously, CUs could apply and receive permission to deploy new branches 50 miles from an existing facility and still comply with rules. Citing those difficulties, Darla Schafer, manager of the $4 million Flasher Community CU, said under the new law her CU could branch 60 miles away into Mott – a hamlet of 800 -but “we couldn’t try to bring in new members 15 miles from there.” It would be illogic to open a Mott branch and do the marketing and then inform residents they couldn’t join “even though they had a Mott address,” she said. Schafer, who also is refusing to pay dues, said she felt “blindsided” by the board decision “not to stick up for their members” and like others found fault with the League’s lobbying team headed by Bismarck attorney Greg Tschider. She said, however, she would not be entertaining any move to switch charters. Tschider, a partner in the law firm Tschider & Boeckel, has maintained the League adopted what was described as a compromise with the NDBA since the League did not want “a federal judge dictating what a well-defined urban or rural district” might be in North Dakota. The FOM law, he notes, does grandfather branches beyond the 75-mile limit and allows in a merger the surviving CU to incorporate all existing FOM limits. As for banker standing, he said CUs already have standing in banking matters. During League meetings, Zubke of Watford City expressed outrage that the League would “expend their resources fighting for and supporting a piece of legislation that limits our field of membership and gives banks and their trade associations the right to sue us. Maybe something stinks” “We received regulatory approval to merge our fourth on Feb. 28-the $3.5 million Riverdale Federal,” he said noting “we’ve helped stabilize and provide financial services to very small communities” but the new law represents a step backward. Erin Olstad, manager of the $12 million Elm River CU of Page and a member of the boycott group, said her CU “is hurt by this legislation” since it curbs the CU’s attempts to help very tiny, rural communities. “Thank God” she said her CU is able to retain a grandfathered branch in Kindred, a tiny community south of Fargo at the edge of the 75-mile limit, before the law is being changed. The state’s top CU regulator, Commissioner Timothy J. Karsky who is head of the Department of Financial Institutions, said his office has always remained “neutral” on the bill but did oppose on safety and soundness grounds a deleted bank-sponsored FOM limit impacting mergers. “We were not about to let happen an original provision in the bill which would have forced a credit union to stop expanding from the merged credit union after it had been acquired, ” explained Karsky, who also is chairman of the CU Board. Under the original plan put forward by the NDBA, a CU would have to close down or stop adding members from an acquired CU under the 75-mile restriction. [email protected]