Bankers File New Suit Against N.C.U.A. in Credit Union Fight.

WASHINGTON--(BUSINESS WIRE)--Oct. 6, 1997--The California Bankers Association (CBA) and the American Bankers Association (ABA) today filed a new suit in District of Columbia Federal Court, challenging the legality of "community" membership criteria established for credit unions by the Washington-based National Credit Union Administration (NCUA).

The action alleges that NCUA has been "arbitrary, capricious and in violation of the Federal Credit Union Act (FCUA)" in allowing the Point Mugu Federal Credit Union, in Oxnard, Calif., to include all "persons who live, worship, or work in, and businesses and other legal entities located within Ventura County" as eligible members.

Federal credit unions are required by law to limit their services to members, who become eligible by sharing "a common bond of occupation or association," or by belonging "to groups within a well-defined neighborhood, community or rural district."

"I'm appalled," said Larry Kurmel, executive director of the CBA, "that a federal agency would argue as NCUA has that Ventura County is a single community because -- and I quote -- 'the majority of Ventura County residents are of one race (white) and the population is generally made up of white collar (professional) employees.' Bankers there know that Ventura County is made up of many diverse communities, whom they serve without regard to race or occupation."

Formerly an "occupation-based" credit union, Point Mugu applied to NCUA for and received a charter conversion in January 1997 to become a geographically determined institution. Conversion documents were obtained from NCUA under the Freedom of Information Act. Four other California credit unions have applied to NCUA for similar conversions.

"It is absurdly permissive for NCUA to construe the law to mean that any of 712,700 residents of Ventura County, which includes at least four separately incorporated cities and 1,846 square miles of largely rural territory, is entitled to membership on the basis of being part of the same community," Kurmel added. "NCUA also says Ventura County is a single community because everyone uses the same freeways! Ventura County is an amalgam of many communities, something NCUA doesn't seem to recognize."

Kurmel added that CBA has not brought legal action in at least 20 years. "We're not a litigious group," Kurmel said. "Our members resent unfair competition, however, and the source of it in this case is NCUA. Credit unions were granted exemption from taxes in order to serve specific limited groups of moderate income workers or residents of small geographic areas. Tax exemption enables them to provide subsidized financial services. When they are able to offer products and services to the general public, however, their tax-free status and consequent cut-rate pricing let them compete unfairly with taxpaying banks, at a direct annual cost to U.S. taxpayers of $1 billion. This subsidy is expected to grow substantially if credit union expansion is not held to existing legal restrictions.

"Banks are also required to make substantial outreach efforts, provide credit, and serve all the communities in their location, not just a select area with specific demographics."

Ventura County, on the Pacific coast between Los Angeles and Santa Barbara counties, was in July 1995, according to official State of California estimates, 66% white, 29% Hispanic, 6% Asian and 2% black.

The California Bankers Association, founded in 1891, is the primary trade group representing commercial banks in the state, with more than 290 bank members. The American Bankers Association plays a similar role at the national level.

CONTACT: California Bankers Association

John Stafford, 415/284-6999 ext. 207

or

American Bankers Association

Patricia Cinelli 202/663-5468