WASHINGTON -- The Supreme Court agreed yesterday to rule on a dispute that threatens the existence of perhaps half the nation's federal credit unions.
The court said it would rule on the right of federally chartered credit unions to open their membership to groups that do not share something in common with existing members -- an employer, for example, or the same neighborhood.
About 3,600 credit unions could be affected, out of more than 7,000 nationwide. Those affected have more than 32 million members and loans totaling $94 billion.
If those credit unions cannot admit members who lack a common bond, the Justice Department told the Supreme Court, they could lose $32.5 million a month in loan income.
Perhaps every one of the 3,600 credit unions formed under the no-common-bond policy approved by the National Credit Union Administration could face the prospect, at some point, of having to surrender the members accepted under that policy, thus jeopardizing the future of those institutions.
Challengers to the policy -- the banking industry, a competitor of credit unions -- have asked a federal judge here to order the credit unions to divest themselves of members taken in under the policy. The judge has yet to act on that request.
For now, the 3,600 credit unions are under a lower-court order not to continue their expansion beyond the members who hold a common bond.
That order has been temporarily blocked, pending the Supreme Court's ruling, which may not come until next year.
A federal appeals court nullified the Credit Union Administration's policy, adopted in 1982, that allowed chartered federal unions to consist of multiple groups.
Distinct new groups could be added so long as they had a common bond among themselves and were located near the offices of the credit union they were joining.
Federal law, the appeals court said, requires that all members have a single common bond, shared by every member.
Each federal credit union receives its funds from the purchase of shares by members.
They make loans only to members, to other credit unions, or to credit union organizations. The credit unions are managed by leaders chosen by their own members.
As the dispute reached the Supreme Court, the justices were asked to decide not only whether the Credit Union Administration policy was legal, but also whether the American Bankers Association and four individual banks had a right to go to court to challenge that policy.
Pub Date: 2/25/97