Enough Is Enough!

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ICBA sues the NCUA to stop unlawful credit union regulations

By Karen Thomas

Declaring enough is enough of unlawful and unreasonably lenient credit union industry regulations, ICBA filed a federal lawsuit on behalf of Main Street America last month against the National Credit Union Administration. The lawsuit specifically targets an unlawful NCUA rulemaking allowing tax-exempt credit unions to dramatically exceed commercial lending limits set by Congress.

If the NCUA’s commercial lending regulation adopted in March is allowed to stand, ICBA said in court documents, it would allow credit unions to exceed the congressionally authorized limits on their tax-exempt lending activity, putting consumers and the financial system at risk in the process. “This unlawful rule from the NCUA is the latest example of the agency stretching the law beyond its breaking point to serve as the tax-exempt credit union industry’s regulatory rubber stamp,” said ICBA President and CEO Cam Fine.

The NCUA’s rule is contrary to the plain language of the Federal Credit Union Act, as amended by the Credit Union Membership Access Act, ICBA said in court documents filed with the U.S. District Court of the Eastern District of Virginia. To protect the safety and soundness of credit unions, Congress has expressly limited the amount of commercial loans that a credit union can both originate and hold.

Important to ICBA’s legal action, federal law defines a “member business loan” as any commercial loan on a credit union’s balance sheet without regard to whether the loan was originated by the credit union or purchased by another credit union. By allowing a credit union to exclude nonmember commercial loans or participations (such as loans originated by another credit union to a borrower who is not a member of the credit union purchasing the loan or participation) from its calculation of the member business loan cap, the NCUA has provided credit unions with a huge loophole they can easily exploit to dramatically increase their commercial lending.

The lawsuit, Independent Community Bankers of America v. National Credit Union Administration, points out that the NCUA has not offered any rational explanation for its interpretation of its commercial lending statute, which reverses a conclusion it reached more than 15 years ago that excluding loans and participations purchased from others from the lending cap would lead to “absurd” results and violate the Federal Credit Union Act.

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View the video online at www.icba.org/advocacy.

The lawsuit notes that the NCUA rule has put consumers, taxpayers and the financial system at risk by jeopardizing the safety and soundness of federally insured credit unions. The NCUA’s action also has expanded the federally funded competitive advantages tax-exempt credit unions enjoy over community banks. As credit union industry assets have ballooned, the NCUA’s role has transformed from a federal financial regulator to an industry cheerleader, ICBA said.

ICBA said it simply wants the agency to adhere to the law when writing its regulations. “Only Congress has the authority to set credit union laws, and the NCUA has ignored the debate on Capitol Hill to satisfy large, growth-oriented credit unions that are subsidized by the American taxpayer,” Fine said. “ICBA and the nation’s roughly 6,000 community banks believe that the credit union industry should not be allowed to continue expanding its lending authority as long as it remains exempt from taxation and the federal financial regulations that taxpaying community banks are obligated to meet.”

ICBA filed its lawsuit as the NCUA is considering a separate proposed field-of-membership rule that exemplifies the regulator’s lax and questionable approach to credit union oversight. That rule would significantly expand the definition of “well-defined local community,” which by law limits the territory a community-based credit union can serve, to include any congressional district. Under the proposal, the seven-state territory would qualify as “local” community. In the case of Alaska, the NCUA would treat towns located more than 1,000 miles apart as part of the same “local” community.

NCUA Lawsuit Resources

ICBA has posted various information resources about its lawsuit against the National Credit Union Administration on the public website Stop the CU Power Grab, found at www.icba.org/stopthecugrab. In addition to a copy of the lawsuit, the website includes an ICBA press release, a video message from ICBA Chairman Rebeca Romero Rainey, and frequently asked questions about ICBA’s legal action. The website also allows community banks to provide ICBA feedback about how tax-exempt credit union commercial lending has damaged community bank lending.


Karen Thomas (karen.thomas@icba.org) is ICBA’s senior executive vice president–government relations and public policy.

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