CUNA, NAFCU and the Pennsylvania Credit Union Association joined the lawsuit as interveners on behalf of NCUA, which means they could appeal the decision, regardless of what NCUA decides.

The decision also affects Americhoice Federal Credit Union in Mechanicsburg, Pa. and New Cumberland Federal Credit Union in New Cumberland, Pa., both of which were granted community charters by NCUA after the agency's decision to award one to Members 1st.

Kane, the chief judge of the U.S. District Court for the Middle District of Pennsylvania and a federal judge since 1998, wrote that some of the evidence NCUA relied on for its decision was "at best incomplete and at worst self-serving." She added that the agency's discussion of shopping patterns in south central Pennsylvania that it used to bolster its conclusions relied on "essentially anecdotal evidence."

Members 1st argued that the six-county area constituted a community for purposes of gaining a charter because all six of the area's major shopping malls are on the I-83 corridor and all nine of the area's main roads filter toward that corridor. In her decision, Kane criticized NCUA for ignoring evidence that there are two dozen shopping centers spread out within the area.

She also criticized the fact that NCUA "ignored the existence of numerous political jurisdictions, taxing authorities, school systems, etc." in the area.

The NCUA said it was "disappointed" by Kane's decision and is considering its next steps. The agency noted that the decision did not challenge its community charter regulations, only the procedures used in the Members 1st case.

But Dennis Dollar, who was NCUA chairman at the time of the board's decision, defended the agency's decision-making process.

"The review process was extensive and the application received more attention than any other case that came before us in my tenure. There were four rounds of back and forths between NCUA and Members 1st. And the file was 14 inches thick," he said.

Members 1st President/CEO Robert Marquette said he was "surprised and disappointed by the ruling. But life goes on and so will we." He added that since his credit union was granted a community charter, its membership has increased from 90,000 to 142,000, and he hopes the judge allows them to keep those members.

NAFCU President Fred Becker said he was disappointed by the decision but that "despite the objections of bankers' groups, we believe credit unions must be allowed to grow their membership to ensure their safety and soundness."

ABA President Edward Yingling praised the decision, stating, "The court has sent a strong signal to the NCUA that it will no longer be able to disregard the law in pursuit of its desire to make it easy for expansion-minded credit unions to increase their fields of membership."

Last week's decision was NCUA's second major loss for NCUA in a community charter case.

In 2004, U.S. District Judge Dale Kimball ruled, in a lawsuit also filed by the ABA, that NCUA did not follow certain metropolitan statistical area standards in granting the six-county approvals for Tooele FCU, America First FCU, Goldenwest FCU and University of Utah FCU, all in Utah.

Tooele FCU was forced to scale back its field of membership to one county after a lawsuit by the ABA challenged the NCUA's decision to expand Tooele's field of

membership to six counties. The NCUA Board granted Tooele's community charter at the same meeting that it granted the one for Members 1st.

After the lawsuit, the NCUA withdrew the underserved areas previously approved for America First, placed a moratorium on nonmultiple common bond credit unions adopting underserved areas and put in place a rule to codify that action.

CUNA's Richard said the two rulings mean that "NCUA needs to explain its decisions better."

The agency's decision-making was also criticized in 2005, when a U.S. Magistrate ruled that the NCUA's decision to invalidate the member vote of Community Credit Union to convert to a mutual savings bank was "arbitrary and capricious."

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