WASHINGTON- The American Bankers Association announced last week two new legal challenges to NCUA's application of field of membership laws and regulation. "They are separate but related because they're on the common bond but different aspects of it," ABA President and CEO Edward L. Yingling told reporters last Tuesday. The ABA is once again challenging the application of field of membership regulations in Utah involving America First Federal Credit Union. The bankers' complaint is that the agency is doing an end run around a court decision earlier this year, which found no community link between the six-county expansion NCUA had granted for the credit union. In this case, the bankers are claiming that the applicable law does not provide for the adoption of underserved areas-which has allowed America First to regain much of the community field of membership that was taken away in the earlier lawsuit-for community chartered credit unions. ABA's filing, which is with the same district where they previously won, says that the only credit union charter permitted to adopt underserved areas is the multiple common bond. According to NCUA Director of External Affairs Nicholas Owens, the agency is currently reviewing the complaint. He added, "However, I can tell you the credit unions followed NCUA's regulations and the agency's regulations are in accordance with the federal statute." NCUA data showed 184 community credit unions from Jan. 1, 2000, to Oct. 31, 2005, which have taken in 353 underserved areas with a potential population of 23.9 million. Former NCUA Chairman Dennis Dollar, who spearheaded the agency's effort to boost the adoption of underserved areas, called ABA's assertions a "very creative misreading of the statute." Dollar explained, "We felt that there was never any question that a community charter could serve underserved areas." The only reason multiple group credit unions are specifically cited is because they might not otherwise be construed as permissible groups, he said. The Dollar Associates principal was galled by ABA's claims. "These areas are largely underserved because the banks have abandoned them. It is the height of hubris." he stated. "Credit unions should be commended, not condemned." Language in question in America First Federal Credit Union case is from 1759 of the U.S. Code, 109 of the Federal Credit Union Act: Membership.-(a) In general.-Subject to subsection (b), Federal credit union membership shall consist of the incorporators and such other persons and incorporated and unincorporated organizations, to the extent permitted by rules and regulations prescribed by the Board, as may be elected to membership and as such shall each subscribe to at least one share of its stock and pay the initial installment thereon and a uniform entrance fee if required by the board of directors. Shares may be issued in joint tenancy with right of survivorship with any persons designated by the credit union member, but no joint tenant shall be permitted to vote, obtain loans, or hold office, unless he is within the field of membership and is a qualified member. (b) Membership field.-Subject to the other provisions of this section, the membership of any Federal credit union shall be limited to the membership described in one of the following categories: (1) Single common-bond credit union.-One group that has a common bond of occupation or association. (2) Multiple common-bond credit union.-More than one group- (A) each of which has (within the group) a common bond of occupation or association; and (B) the number of members, each of which (at the time the group is first included within the field of membership of a credit union described in this paragraph) does not exceed any numerical limitation applicable under sub-section (d). (3) Community credit union.-Persons or organizations within a well-defined local community, neighborhood, or rural district. (c) Exceptions. (2) Exception for underserved areas.-Notwithstanding subsection (b), in the case of a Federal credit union, the field of membership category of which is described in subsection (b)(2), the Board may allow the membership of the credit union to include any person or organization within a local community, neighborhood, or rural district if- (A) the Board determines that the local community, neighborhood, or rural district- (i) is an `investment area', as defined in section 103(16) of the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4703(16)), and meets such additional requirements as the Board may impose; and (ii) is underserved, based on data of the Board and the Federal banking agencies (as defined in section 3 of the Federal Deposit Insurance Act), by other depository institutions (as defined in section 19(b)(1)(A) of the Federal Reserve Act); and (B) the credit union establishes and maintains an office or facility in the local community, neighborhood, or rural district at which credit union services are available. ABA's position, according to Yingling, is the following: "As a matter of statutory construction, there is no authority for a community credit union to have an underserved area added to it, period. NCUA cannot add underserved areas to community credit unions." He called NCUA's underserved requirements and accountability "a joke." For example, though not cited in the court filings, he pointed to the Robins Federal Credit Union adoption of Clark County, Ga. as an underserved area. According to Yingling, the branches it has placed in this underserved community have been located in upper income census tracts; NCUA does not require accountability after the area is granted, he said. Dollar reiterated, "It is incredible to me that the banks would sue for the very areas banks have abandoned." In Pennsylvania, the ABA is questioning the community charter approved for Members 1st Federal Credit Union and subsequent approvals for the same area. The six-county-plus community encompasses more than three metropolitan statistical areas and over one million residents, the bankers pointed out. Here, ABA raises the issue of the definition of a local, well-defined community. "We approved and felt very strongly that nothing in `well-defined, local community' said it had to be defined by one city," said Dollar, who was on the board at the time of the 2003 decision. He explained that sometimes the connection is a waterway or highway, like Route 83 in this instance. As in the previous Utah case, which the ABA won, the banker association states that NCUA's fact-finding was inadequate and the regulators "just take whatever's put in the record by the credit unions at face value," Yingling added. They say that NCUA disregarded the three separate cities, 90 boroughs, 140 townships and 214 local authorities that make up the area. The agency also relied on outdated local government information, according to ABA, and ignored more recent studies of metropolitan statistical areas. "By reason of the approval by the NCUA of the Members 1st application," the claim reads, "ABA, PBA (Pennsylvania Bankers Association) and PACB (Pennsylvania Association of Community Bankers) members, including Legacy Bank, will be subjected to unlawful competition in their business or potential business, which competition would not exist but for the NCUA's unlawful approval of the Members 1st community charter. The NCUA's approval of the Members 1st application, thus, inflicts and threatens serious competitive injury to ABA, PBA, and PACB members and The Legacy Bank. The subsequent approval of the New Cumberland and AmeriChoice community charter applications, given on the immediate coattails of the Members 1st application approval, multiplies the ruinous competition for ABA, PBA and PACB members." ABA as well as the PBA, PACB, and Legacy Bank are asking the court to enter a judgment: (1) Declaring that the field of membership identified in the Members 1st, New Cumberland and AmeriChoice community charters is not a well-defined local community, neighborhood, or rural district 12 U.S.C. 1759(b)(3); (2) Holding unlawful, and setting aside, the NCUA's approval of the Members 1st, New Cumberland and AmeriChoice community charter applications; (3) Declaring that the NCUA's approval of the Members 1st, New Cumberland and AmeriChoice community charter applications is unlawful, null and void; (4) Enjoining the NCUA from approving any other credit union community charter applications with the same field of membership as the Members 1st community charter; (5) Enjoining the NCUA from taking any steps to implement, or allow credit unions to implement, a community charter with a field of membership as defined in the Members 1st community charter application; (6) Ordering the NCUA to pay plaintiffs costs; and (7) Granting such other relief as the Court may find just and reasonable. "We think there's a pattern here of NCUA ignoring the law. We intend to use the courts to force NCUA to follow the law," Yingling said. While ABA is trying to set a precedent with the cases, Yingling reassured, "For the great majority of credit unions, these cases are no threat whatsoever because the great majority of credit unions are not trying to create very large community common bonds across multiple MSAs." It all goes back to the purpose of the tax-exemption, ABA Senior Economist Keith Leggett said. He said ABA's testimony for last Thursday's tax-exemption hearing would appeal to taxing the `new breed' of credit unions, but not necessarily advocate an asset size cut-off. "If you are a community bank trying to compete with a credit union that can do anything you can do, can go anywhere you can go and doesn't pay taxes, it's tough to compete," Yingling concluded. CUNA General Counsel Eric Richard said that he was still reviewing the case and would not be prepared to comment on details by press time. However, he attacked the ABA for "its strategy of using its money and influence in attempts to stifle the ability of credit unions to continue serving more consumers." He noted the ABA's "typically hypocritical approach" in the Utah filing. "On the one hand, they say credit unions should serve more low-income people. But in suing NCUA over the agency's actions in Utah, the ABA is actually seeking to prevent community credit unions from doing just that. This shows that their only real agenda is to squelch competition from more consumer-friendly institutions." As far as the Members 1st case, Richard said, "Their efforts to use the courts to harass credit unions out of serving more Americans are bound to fail because the public wants these services and will find a way to get them. The banking industry should know that their efforts to argue with the marketplace always fail in the long run." NAFCU was still reviewing the court filings and declined to comment as of deadline. [email protected]