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Court to hear dispute over membership in credit unions

February 24, 1997

WASHINGTON (AP) _ The Supreme Court today revived the government’s effort to ward off new restrictions on who may join federally chartered credit unions.

The justices said they will hear the Clinton administration’s argument that a lower court ruling misinterprets federal law and ``threatens nationwide instability and losses in the credit union industry.″

The government says a federal appeals court ruling affects almost 3,600 credit unions _ about half of all federal credit unions nationwide _ that serve more than 32 million people.

Credit unions offer many of the same consumer services as banks but can make better deals on loans and savings rates because they don’t pay federal taxes. They are supposed to serve groups of people with a ``common bond,″ such as a company’s employees, union members or residents in a specific neighborhood.

Federal credit union officials expanded that definition in 1982 to allow small businesses that lacked enough workers to form their own credit unions to join existing credit unions.

Bankers challenged that expansion, and a federal appeals court ruled in the bankers’ favor last July.

The appeals court said ``all members of a federal credit union must share one common bond.″ For example, AT&T workers still could join the AT&T Family Federal Credit Union, but anyone who didn’t work for the long distance company could not.

A federal judge briefly barred credit unions from enrolling new members who were not part of their traditional membership. But the appeals court said the industry could continue signing up new members under the old rules until the Supreme Court decided whether to hear the government’s appeal.

In the appeal acted on today, Justice Department lawyers said a 1934 federal law governing credit unions allows them to be composed of ``several member groups, each with its own common bond.″

Government lawyers also challenged banks’ legal standing to sue over the credit union rules.

The banks’ lawyers said the federal credit union law clearly required all members of a credit union to share a common bond. Under the government’s interpretation, ``every person in the United States who has a job with any employer ... could be a member of the same federal credit union,″ the bankers argued.

The cases are National Credit Union Administration vs. First National Bank & Trust Co., 96-843, and AT&T Family Federal Credit Union vs. First National bank & Trust Co., 96-847.

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