Originally created 02/25/97

Credit union case affects millions



WASHINGTON - In a case that affects millions of credit union members across the nation, the Supreme Court agreed Monday to review a new restriction on who may join federally chartered credit unions.

Justice Department lawyers are challenging the restriction ordered by a lower court, saying it "threatens nationwide instability and losses in the credit union industry."

The justices said they will hear appeals filed by the government and by the AT&T Family Federal Credit Union of Winston-Salem, N.C.

The case affects almost 3,600 credit unions - about half of all federal credit unions - government lawyers said. Those credit unions serve more than 32 million people and hold $132 billion in deposits.

Credit unions offer many of the same consumer services as banks but can make better deals on loans and savings rates because they don't pay federal taxes.

Federal law says federally chartered credit unions must serve groups of people with a "common bond," such as a company's employees, members of a union or residents of a neighborhood.

Federal officials expanded that definition in 1982 to allow businesses too small to form their own credit unions to join existing credit unions. Such groups must have their own common bond but need not share a common interest with other members of the credit union.

Bankers challenged that expansion, and the U.S. Court of Appeals for the District of Columbia Circuit ruled in the bankers' favor last July.

The appeals court said "all members of a federal credit union must share one common bond." For example, AT&T employees could join the AT&T Family Federal Credit Union, but anyone who didn't work for the company or its affiliates could not.

A federal judge briefly barred credit unions from enrolling new members who were not part of their traditional membership. But the appeals court decided to let the industry continue signing up new members under the old rules until the Supreme Court decided whether to hear the case.

In the appeal granted high court review, Justice Department lawyers said the 1934 federal law governing credit unions allows them to be composed of "several member groups, each with its own common bond."

Government lawyers also challenged banks' legal standing to sue over the credit union rules.

The AT&T credit union's attorneys said the appeals court decision "threatens to devastate the entire credit union industry by denying credit unions the opportunity to add new members."

Lawyers for the banks said federal law clearly required all members of a credit union to share a common bond. Under the government's interpretation, "every person in the United States who has a job with any employer ... could be a member of the same federal credit union," the bankers argued.

Donald Ogilvie, executive vice president of the American Bankers Association, acknowledged in a statement that credit unions have a legitimate role in the financial services industry but added, "Should Congress continue to allow taxpayers to finance thousands of credit union conglomerates that are functionally indistinguishable from other federally insured financial institutions and perfectly capable of surviving on their own?"

A coalition of credit union groups, meanwhile, released a survey of 700 adults that showed 66 percent agreeing with the statement that credit unions exist to help people while banks were created to maximize profits. Eighty-two percent said they believe every consumer should have access to credit union services through one or more credit unions, and 68 percent said they wanted their member of Congress to support legislation to help credit unions.