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CUs, Banks Argue Field-of-Membership Case Before State Corporation Commission

Authored By: Lewis Wood on 7/13/2020

Virginia Case Might Have National Impact

Credit unions and banks were back before a State Corporation Commission hearing examiner last Thursday and Friday, arguing a case on a field-of-membership expansion granted to Virginia Credit Union.

Last year, the state Bureau of Financial Institutions approved a field-of-membership expansion for Virginia Credit Union to serve the Medical Society of Virginia, a 10,000-member association offering support and services to medical professionals across the Commonwealth.

The Virginia Bankers Association and several of its member banks objected, petitioning the State Corporation Commission to rehear and reconsider the decision of the Bureau of Financial Institutions to allow Virginia Credit Union to serve the group. The Commission granted the bankers' request to stay the expansion decision.

Last week's hearing stretched over two days, with more than 10 hours of arguments and testimony. Your League is a party to the case. You can view case information here.

The hearing examiner will prepare a recommendation in the case for the State Corporation Commission judges, with the judges then offering a ruling in the case. They can disregard the recommendation if they so choose. The bankers also have a path to appeal an unfavorable SCC decision to the state Supreme Court, which means it could be a year or more before we see the final resolution of the case.

"We understand this case is a long way from being resolved," noted League President Rick Pillow. "We feel strongly that an unfavorable decision in this case would establish a precedent that might well have a chilling effect on state-chartered, multiple-common-bond credit unions’ pursuit of charter expansions. It also weakens the state charter, a concern for us as advocates of a dual-chartering system that encourages innovation and flexibility. What’s more, laws granting authority to regulators to approve common-bond expansions for groups with more than 3,000 potential members in Virginia and at the federal level are very similar in both wording and intent, so we have legitimate concerns that a win for bankers at the state level could have repercussions at the federal level.”

Bankers' chief argument in the case centered on the Medical Society of Virginia's ability to form its own credit union, with particular focus on whether or not State Banking Commissioner Joe Face's decision to grant the FOM expansion was supported by the evidence before him, as well as whether or not that evidence was accurate.

In written and oral testimony, Banking Commissioner Joe Face said numerous factors played into his granting the field-of-membership expansion, including his more than 20 years of experience as commissioner, his knowledge of regulatory requirements, marketplace realities for small credit unions, cybersecurity needs, the accounting and money management expertise required to run a credit union, capital needs, and the need for volunteers to devote their time and talents to the formation of a de novo credit union. The Commissioner and attorneys for the League, Virginia Credit Union and the Medical Society of Virginia also noted that formation for the credit union is only one part of the equation. Given the technology, regulatory and marketplace issues, the Commissioner must also consider the long-term viability of such a credit union.

Attorneys for Virginia Credit Union and the Medical Society of Virginia argued that the bankers' claim on MSV's ability to form a credit union relied heavily on the organization's willingness to risk its financial health in the pursuit of such a venture.

The question here, noted League attorney John Schronce, in addressing MSV's potential to form and operate a credit union, is what is feasible and advisable. "Where does this leave us? It leaves us with a petition that is in search of a claim."

"The League's concern all along here is that this petition would do violence to the process. The prospect of an expensive litigation fight would have a chilling effect on other credit unions that seek to expand their field-of-membership," noted Schronce. "The General Assembly, in its wisdom, has enacted a statute permitting  credit unions to add groups of people with more than 3,000 people to their fields-of-membership provided the statutory requirements are satisfied. By the way, Congress has done the same thing. Petitioners shouldn't be allowed to excise the statutory provision with threats of litigation."

"Commissioner Face made a sound decision here," said Schronce. "He got all the information he needed, and more. He invited everybody to the table through public notice, everybody had their say ... Monday morning quarterbacking by people who have never worked a day at a credit union isn't enough to carry the day here."

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