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Judge dismisses community bank suit against National Credit Union Administration

A judge threw out a lawsuit that community banks filed against the federal regulator of credit unions over fears of increased competition. File photo.

A judge threw out a lawsuit that community banks filed against the federal regulator of credit unions over fears of increased competition. File photo.

A federal judge has dismissed an Independent Community Bankers of America lawsuit against the National Credit Union Administration over a rule change governing loan limits.

NCUA is the federal regulator for credit unions. Independent Community Bankers of America, or ICBA, sued over a rule change the administration made that removed limits on the amount of money credit unions could loan.

The bank association said that the rule change would hurt community banks by allowing credit unions to compete for more loans. ICBA said credit unions have an unfair advantage because as nonprofit organizations they are eligible for tax exemptions allowing them to underwrite loans at rates banks can’t afford.

“This is kind of the whole picture looking at the commercial lending aspect,” Trent Wright, president of the Idaho Bankers Association, said in September. “Idaho banks paid a total of $13.9 million in taxes last year and Idaho credit unions paid zero.”

NCUA changed credit union loan limits in March. Congress allows credit unions to do a certain amount of commercial lending in order to raise capital, but only allows a credit union to lend up to 12.25 percent of its total assets.

The NCUA’s rule change allows credit unions to make commercial loans to non-member businesses without those loans counting against the cap.

Judge James Cacheris dismissed the lawsuit Jan. 24 because the ICBA failed to prove that banks would be harmed by the rule change, he said.

“It is not clear at this point that (NCUA’s) 2016 regulation will result in increased competition against (community) banks,” Cacheris said in his ruling. “Credit unions were able to compete with banks in the commercial loan arena before the 2016 rule. Indeed, (ICBA) represents that they have done so vigorously.”

ICBA has appealed, Wright said.

Trent Wright

Trent Wright

An American Bankers Association suit against the NCUA for a 2016 rule change that expanded the field of  membership for several credit unions is still active. The NCUA’s rule change expanded the definition of “community” to allow credit unions more freedom in taking on new members.

ABA said the rule unfairly increased credit union memberships and the value of their tax exemptions.

The NCUA said it made the rule change so that its member credit unions could manage the assets of residents in rural and underserved areas.

“Obviously we are very disappointed on the district court’s ruling to dismiss the (ICBA’s) lawsuit on the cap,” Wright said. “But, we were aggressively going against them on two fronts and although one is put on hold the other is still going forward.”

 

About Benton Alexander Smith

Benton Alexander Smith is a reporter for the Idaho Business Review, covering the Idaho Legislature, new business, technology and financial services.