WASHINGTON–It was the day that changed everything for credit unions–and it’s marking its 20th anniversary as credit unions once again return to Washington for CUNA’s GAC.
On Feb. 25, 1998, the U.S. Supreme Court in the case First National Bank & Trust Co. vs. National Credit Union Administration ruled 5-4 against NCUA–and credit unions–on the issue of field of membership.
At issue was how NCUA had opted to interpret the FCU Act, finally deciding that it allowed multiple “groups” as long as each had a common bond.
But the Supreme Court majority opinion, written by Justice Clarence Thomas, found that in 1982 the NCUA had illegally reinterpreted Section 109 of the Federal Credit Union Act and that credit unions were in fact limited to a single common bond. Thomas had been joined in his opinion by Chief Justice William Rehnquist and justices Anthony Kennedy, Ruth Bader Ginsberg, and Antonin Scalia.
The case had begun its life eight years earlier when the president of a small bank in North Carolina–First National Bank & Trust–became upset that the then AT&T Family Federal Credit Union had taken in more than 150 companies and groups that were not associated with the telephone company. The lawsuit (four other North Carolina banks and several bankers’ associations would also join as co-plaintiffs, while NCUA was eventually named as the defendant) worked its way through the courts before the U.S. Court of Appeals D.C. Circuit in July of 1996 finally ruled against credit unions, with that case then being appealed to the Supreme Court.
The Crowd is Dumbstruck
The announcement of the court’s ruling came at the same time CUNA was hosting its Governmental Affairs Conference in Washington, and an audience at the Washington Hilton that had been overly confident the Court would rule in favor of credit unions was dumbstruck by the announcement. Soon there was consternation, anger and even fear that both federal and state charters would need to begin expelling some of the 15 million members who had joined as the result of the NCUA interpretation of the FCU Act.
The Supreme Court ruling was also announced just ahead of planned remarks by then Speaker of the House Newt Gingrich (R-GA), who told the crowd that Speakers traditionally avoid adding their names as co-sponsors to legislation, but that he would be doing so with the then fledgling HR 1151, the Credit Union Membership Access Act. The announcement set off a roar of approval among credit union attendees.
While Gingrich’s name on the bill added some momentum, it was no guarantee the bill would pass. Members of Congress, eager to remain in the good graces of the deep-pocketed banking industry, had been reluctant to sign on as co-sponsors, and many had played politics and delayed making any decision, saying they were waiting on the Court to rule. Gingrich had to do some work to get two co-sponsors, Rep. Paul Kanjorski (D-PA) and Rep. Stephen LaTourette (R-OH), to sign as the bill’s co-sponsors.
Bankers Hail Ruling
In the meantime the nation’s banking industry hailed the Supreme Court ruling. The Independent Community Bankers Association responded, “We are pleased that the Supreme Court has agreed with the nation’s banks that credit unions have been enjoying a free ride courtesy of the nation’s taxpayers. The decision confirmed that some credit unions have overstepped their common bond. The winners are the American taxpayers who are supporting a growing subsidy that would've grown like Topsy absent this court decision.”
America’s Community Bankers added, “We will now work with Congress to make sure that those credit unions that have expanded from their original mission have the same obligation as banks and thrifts to pay taxes and play by the same rules.”
Even before the Court ruling, some in credit unions had been saying that regardless of the Supreme Court decision, what was needed was a legislative fix to the Federal Credit Union Act. Led by its then relatively new CEO, former congressman Dan Mica had been hired in part because of the need to get legislation passed.
The trade groups, which had been backing their own separate campaigns to respond to the bank lawsuits and to get legislation passed, found themselves sufficiently scared by the Supreme Court decision to push aside old rivalries. Soon, CUNA joined with NAFCU, CUNA Mutual Group and others in the Campaign for Consumer Choice, the coordinating effort behind the push for passage of HR 1151.
‘We Cannot Go Home’
Some people within credit unions recognized at the time how momentous the Court decision was for credit unions.
“We cannot go home. We have changed. The credit union movement will never be the same. We have educated consumers and now they know about us we are starting the beginning of a new march,” observed Buck Levins, then president of Robins Federal Credit Union in Georgia.
Levins had been charged with the job of fundraising for the Campaign for Consumer Choice, and in the day after the Supreme Court ruling he had gathered up $40,000 in donations during GAC.
Credit unions and their trade associations had already been involved in a coordinated lobbying effort, but the Supreme Court ruling in February set off a six-month campaign that was the largest, most aggressive and best-funded lobbying effort in the history of credit unions.
One big carrot/stick issue was the fate of the 15 million members who had become eligible to join a credit union only because of NCUA’s expanded interpretation of field of membership. Some in the banking industry had called for their “divestiture,” while others within the banking industry held up as a carrot a promise that those members could remain in exchange for strict membership limits moving forward to be incorporated into HR 1151.
Credit unions also leveraged the threat of divestiture, informing members they may have their accounts closed as they would need to be booted from their credit unions if the banking industry got its way. Members were urged to contact their congressman immediately, and many responded. One member of Congress reportedly was unable to push open his front door because so much mail had been shoved through the mail slot. Another congressman remarked at the time that he was willing to talk about any subject but credit unions, so often had he been approached on the subject both in Washington and at home.
Other Threats
But divestiture of members wasn’t the only threat.
By the late 1990s the credit union lobby was working hard to separate the field of membership issue from taxation issue, even as the ABA was doing its best to connect the two in Congress. The American Bankers Association published a white paper titled “The Credit Union Tax Exemption and the Common Bond,” which the bankers hoped would lay the groundwork for repeal of the credit union tax exemption. A GAO study around the same time would later find that the five banks that had filed the lawsuit over FOM had not been injured by the expansion by AT&T Family FCU (now known as Truliant FCU).
The ABA also endorsed a proposal calling for any community chartered credit unions to comply with the Community Reinvestment Act.
Some in credit unions even assumed the tax exemption would be lost, and by the first half of 1998 five credit unions had converted to savings banks charters. More than 120 federal credit unions had applied for a state charter after the 1996 lower court ruling in the AT&T Family case
A Record Response
Spurred by the one-day haul at GAC, credit unions would raise record levels of political action committee money in 1997, 1998 and the years since, eventually becoming a major financial player among Washington PACs, as the 2018 CUNA GAC demonstrates.
Around the country state-level efforts were often low-budget but impactful. The then Arkansas CU League conducted a two cents campaign in which CU members were urged to literally send their two cents worth to their respective congressional representatives. The league visited the offices of its House delegation and left giant jars in which to store the pennies as a reminder of the CU message.
All of the effort, including rallies in Washington, would lead to overwhelming passage in the House (411-8) of HR 1151 in April of 1998 (ironically one of those who voted against it was then congressman and now CUNA President Jim Nussle), followed by near landslide passage in the Senate on July 14, 1998.
Three weeks later, President Bill Clinton signed the CU Membership Access Act into law.
The legislation updated the Federal Credit Union Act to allow multiple groups within CU fields of membership and also vastly expanded the concept of what qualifies as a “community.” In the two decades since passage of the legislation, credit union assets have grown to more than $1 trillion, with more than 113 million Americans now members.
And all because of a ruling over how the letter “s” in “groups” should be defined.