(CN) - The American Bankers Association is challenging a final rule promulgated by the National Credit Union Administration that it claims will greatly expand the allowable customer base for credit unions.
In a lawsuit filed in the U.S. District Court for the District of Columbia, the association claims the proposed , which is set to go into effect on Feb. 5, 2017, obliterates longstanding congressional guidelines, which state that membership is a community credit union is limited to “[p]ersons or organizations within a well-defined local community, neighborhood, or rural district.”
The rule at issue has been proposed by the National Credit Union Administration, an independent federal agency that charters, supervises and insures the savings federal and most state-chartered credit unions.
If enacted, it would allow community credit unions to operate much more as regional or national entities, rather than being confined to a membership in a single community, neighborhood or rural district, the association says.
The Dec. 7 complaint notes that in regard to the latter, the population of a defined rural district was no more than 25,000. Under the final rule, the population o rural district is now set at 1 million.
The association claims the increase in the size of the potential customer base set by the final rule gives credit unions, which are exempt from federal and most state taxes, an unfair competitive advantage.
Because credit unions are tax-exempt nonprofits, they can offer customers smaller interest rates on their loans and higher interest rates on their savings accounts, the complaint says.
The ABA claims the proposed rule, “would directly undermine the ability of tax-paying banks to serve their communities — replacing healthy, private sector financial services with government-subsidized competition.”
The lawsuit notes that this is not the first time that the defendant National Credit Union Administration attempted to expand the fields of membership for credit unions, though the association has generally prevailed it holding such attempts at bay.
The complaint points particularly to the 2004 case American Bankers Association v. NCUA, in which a, a federal court criticized the credit union administration for "abdicating its 'gate-keeping responsibility to ensure that the "local" requirement is satisfied.'”
In that case, the court held the credit union administration “cannot act as a rubber stamp or cheerleader” for the credit union industry rather than enforcing the limitations established by Congress.
The American Banking Association is seeking declaratory relief, asking the court to determine that the credit union administration has exceeded its authority, and injunctive relief prohibiting it from continuing to promote the expansion of credit unions.
The association is represented by Robert Long, Jr. of Covington & Burling LLP in Washington, D.C.
The credit union association has not commented on the lawsuit. However, a trade group, the National Association of Federal Credit Unions blasted the association, saying in a statement that, "If the banks had put this much effort and money into policing themselves, maybe they could have helped avoid the financial crisis they caused that harmed consumers and our country's economy."
"NCUA's field of membership rule is well within the agency's legal authority and is in keeping with the Federal Credit Union Act," the statement continued. "This suit is another outrageous effort by the banking trade group to distort the truth and continue to stymie credit unions' ability to provide consumers with the choice of a financial institution that puts them first."
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