Community Bank Challenge to Credit Unions

Today, the Independent Community Bankers Association (“ICBA”), a trade group representing the community banking industry, filed a lawsuit challenging new rules permitting credit unions to make additional types of commercial loans.

The ICBA asserts that the National Credit Union Administration, which regulates credit unions and recently issued the federal regulation in dispute, violated its rule-making authority and powers by issuing the member bank loan (“MBL”) rule. See 81 Fed. Register 13,530 (Mar. 14, 2016).

According to the allegations in the Complaint, the MBL rule permits federal credit unions to acquire entire loans issued by other lenders/credit unions, despite the fact that the borrower is not a member of the acquiring credit union. Id. at 13,558. The MBL rule also permits federal credit unions to purchase participation in such loans. Id. The Complaint alleges that this proposed regulation violates the Federal Credit Union Act, 12 USC 1751, which restricts the extent of commercial lending in which a credit union may engage. The relief sought by the ICBA is not surprising; the lawsuit requests that the MBL rule be declared arbitrary and capricious and that sections violating the Federal Credit Union Act be set aside.

The MBL rule is scheduled to become effective in January 2017, but perhaps this challenge could frustrate that date. Although it remains to be seen what will happen with this lawsuit, a tight lending market continues to challenge community banks in many areas. This lawsuit acknowledges the competitive edge that credit unions have with their nonprofit status and their forthcoming ability to engage in expanded commercial lending.

Should you have any questions, please contact Spilman.


By R. Scott Adams

R. Scott Adams

 

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