Banks take credit union regulator to court

Banks take credit union regulator to court
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A community-banking group has filed a lawsuit against the nation’s top regulator for credit unions, arguing one of its new rules creates massive loopholes that violate the will of Congress.

The Independent Community Bankers of America (ICBA) announced Wednesday that it had filed a legal challenge against regulations issued by the National Credit Union Administration (NCUA). In it, the group warned that rules completed in February that make it easier for credit unions to engage in business lending threaten to unfairly cut into community banking business, while circumventing statutory language governing credit unions.

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“The NCUA is attempting to unilaterally expand loopholes for tax-exempt credit unions by sidestepping Congress and putting consumers at risk,” said ICBA President and CEO Camden Fine. “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.”

This new lawsuit marks the latest development in a long-running feud between banks and credit unions. The two have constantly jockeyed for business across the country and for influence in Washington. Credit unions have chafed at restrictions placed on their business and pushed for legislative or regulatory expansions. And banks have argued that the tax exemption the credit unions enjoy presents an unfair advantage and their business activity should rightfully be curbed by Washington.

Specifically, the ICBA is crying foul over new rules that allow credit unions, which normally face a limit on the amount of business lending they can do, to not count nonmember business loans against their statutory member business-lending cap.

In February, the NCUA unanimously finalized the rule expanding the lending exemption, which Chairman Debbie Matz said ushered in a “new era” for credit unions.

The rule change was presented as a shift from overly specific rules for credit unions to a more holistic approach that will allow credit unions to manage their portfolios in a way that suits their particular needs.

“It is time to transition from prescriptive limits to overarching principles that will provide greater flexibility for credit unions to serve more member businesses,” said Matz at the time.

But community banks, wary of credit unions gaining an advantage in attracting business, argue the new rule is effectively a massive loophole to allow credit unions to get around their lending caps.

“At ICBA, we believe that’s absurd and a perversion of the statute,” said Fine. “The NCUA has not offered a rational explanation for its radical policy change.”

Credit unions say they are ready to defend their business against any challenges from banks.

“We’re going to continue to vigorously defend the NCUA’s rule,” said Carrie Hunt, general counsel and executive vice president of government affairs with the National Association of Federal Credit Unions. “This is yet another step in banks trying to attack credit unions when in reality, they should be focused on serving their customers.”

In response to the lawsuit, an NCUA spokesman said the agency is reviewing the complaint, and will respond.

The suit was filed in the U.S. District Court of the Eastern District of Virginia.