NCUA v. First National Bank & Trust
Encyclopedia
NCUA v. First National Bank & Trust, , is a legal case
in which the Supreme Court of the United States
ruled that banks had prudential standing to challenge regulations that permitted credit unions to enroll unaffilated members.
, 12 U.S.C. §§ 1751 -1759k, which limits federal credit union membership to “groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community or rural district
.” 12 U.S.C. § 1759. There are three permitted types of common bonds: occupational, associational, and community. Until 1982, federal credit unions formed along occupational lines consisted of the employees of one employer. In 1982, NCUA announced a multiple group occupational credit union policy that resulted in large, interstate, credit unions that offer banks competition for consumer products
and services.
Because of their mutual form of ownership, credit unions are not subject to corporate taxes
. Banks argue that since credit unions do not pay taxes, they may offer consumer banking products at prices lower than banks and thrifts. Credit unions do not come under the requirements of the Community Reinvestment Act
, 12 U.S. C. §§ 2901 -2906, as they solely lend to their membership.
and Trust Company
v. National Credit Union Administration
, 90 F. 3d 525 (D.C. Cir. 1996), which had remanded the case to the district court. This meant that, without legislation changing the language of the statute, a broad order could have been issued enjoining the admission of members to any federal occupational credit union who did not share the original single common bond of occupation. All parties to the suit, however, asked the court to delay acting while Congress considered legislation. Without legislation, it was feared that many of the large credit unions already in existence would face the likelihood that their stream of new members would slow to a trickle and, thus, their long term viability prospects diminish.
. From the Senate-reported version (S.Rept. 105-193), capital standards are prescribed—7% of net worth
for a well-capitalized credit union—and a cap is placed on commercial loans—1.75% of net worth. This limits the total amount of member business loans over $50,000 that a well-capitalized credit union may carry to 12.25% of net worth.
Also from the version reported by the Senate Banking Committee
, a sequence of prompt corrective actions is prescribed for implementation as a federally insured credit union's net worth declines below prescribed levels. There are also new auditing procedures and voting requirements for a credit union to convert to a bank or thrift charter
.
The legislation mandates studies on the differences between the regulatory and tax treatment accorded credit unions and other federally insured financial institutions. It requires the federal banking agencies to detail their progress in efforts to streamline regulatory burdens. It also imposes a requirement that the Secretary of the Treasury
recommend, within one year, legislative and administrative action to reduce and simplify the tax burden
on small banking institutions: insured depository institutions having less than $1 billion in assets and banks having total assets between $1 and $10 billion.
Legal case
A legal case is a dispute between opposing parties resolved by a court, or by some equivalent legal process. A legal case may be either civil or criminal...
in which the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
ruled that banks had prudential standing to challenge regulations that permitted credit unions to enroll unaffilated members.
Background
The case involves the Federal Credit Union ActFederal Credit Union Act
The Federal Credit Union Act is an Act of Congress enacted in 1934. The purpose of the law was to make credit available and promote thrift through a national system of nonprofit, cooperative credit unions...
, 12 U.S.C. §§ 1751 -1759k, which limits federal credit union membership to “groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community or rural district
Rural district
Rural districts were a type of local government area – now superseded – established at the end of the 19th century in England, Wales, and Ireland for the administration of predominantly rural areas at a level lower than that of the administrative counties.-England and Wales:In England...
.” 12 U.S.C. § 1759. There are three permitted types of common bonds: occupational, associational, and community. Until 1982, federal credit unions formed along occupational lines consisted of the employees of one employer. In 1982, NCUA announced a multiple group occupational credit union policy that resulted in large, interstate, credit unions that offer banks competition for consumer products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
and services.
Because of their mutual form of ownership, credit unions are not subject to corporate taxes
Corporate tax in the United States
Corporate tax is imposed in the United States at the Federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Federal tax rates on corporate taxable income vary from 15% to 35%. State and local taxes and rules vary by jurisdiction, though many...
. Banks argue that since credit unions do not pay taxes, they may offer consumer banking products at prices lower than banks and thrifts. Credit unions do not come under the requirements of the Community Reinvestment Act
Community Reinvestment Act
The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...
, 12 U.S. C. §§ 2901 -2906, as they solely lend to their membership.
Supreme Court finding
The Court affirmed First National BankFirst National Bank
First National Bank may refer to:-Banking institutions :* First National Bank of Florida, based in Milton, Florida, with branches in Pensacola and other cities in the Florida Panhandle.* FNB Corporation of Hermitage, Pennsylvania...
and Trust Company
Trust Company
Trust Company can refer to:*Trust company, a company acting as a trustee*Trust Company *Trust Company, predecessor to SunTrust Banks...
v. National Credit Union Administration
National Credit Union Administration
The National Credit Union Administration is the United States independent federal agency that supervises and charters federal credit unions...
, 90 F. 3d 525 (D.C. Cir. 1996), which had remanded the case to the district court. This meant that, without legislation changing the language of the statute, a broad order could have been issued enjoining the admission of members to any federal occupational credit union who did not share the original single common bond of occupation. All parties to the suit, however, asked the court to delay acting while Congress considered legislation. Without legislation, it was feared that many of the large credit unions already in existence would face the likelihood that their stream of new members would slow to a trickle and, thus, their long term viability prospects diminish.
Legislation
P.L. 105-219 contains clauses to preserve all existing multiple bond arrangements and permit new members to be added to all current groups. It includes provisions to curb future growth of multiple-group credit unions—instructions to NCUA with respect to chartering single groups where possible and providing geographic components to affiliations. Groups of more than 3,000 would generally not be permitted to affiliate with an existing credit union. Multiple group credit unions could extend their membership to persons and organizations located within areas underserved by other depository institutionsFinancial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
. From the Senate-reported version (S.Rept. 105-193), capital standards are prescribed—7% of net worth
Net worth
In business, net worth is the total assets minus total outside liabilities of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time...
for a well-capitalized credit union—and a cap is placed on commercial loans—1.75% of net worth. This limits the total amount of member business loans over $50,000 that a well-capitalized credit union may carry to 12.25% of net worth.
Also from the version reported by the Senate Banking Committee
United States Senate Committee on Banking, Housing, and Urban Affairs
The United States Senate Committee on Banking, Housing, and Urban Affairs has jurisdiction over matters related to: banks and banking, price controls, deposit insurance, export promotion and controls, federal monetary policy, financial aid to commerce and industry, issuance of redemption of notes,...
, a sequence of prompt corrective actions is prescribed for implementation as a federally insured credit union's net worth declines below prescribed levels. There are also new auditing procedures and voting requirements for a credit union to convert to a bank or thrift charter
Demutualization
Demutualization is the process by which a customer-owned mutual organization or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, members of a mutual usually receive a "windfall" payout, in the form...
.
The legislation mandates studies on the differences between the regulatory and tax treatment accorded credit unions and other federally insured financial institutions. It requires the federal banking agencies to detail their progress in efforts to streamline regulatory burdens. It also imposes a requirement that the Secretary of the Treasury
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
recommend, within one year, legislative and administrative action to reduce and simplify the tax burden
Tax incidence
In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day, bears the burden of the tax...
on small banking institutions: insured depository institutions having less than $1 billion in assets and banks having total assets between $1 and $10 billion.
See also
- List of United States Supreme Court cases, volume 522
- List of United States Supreme Court cases
- Lists of United States Supreme Court cases by volume