The Supreme Court opened its term in October with a case that could jeopardize the future of the National Institutes of Health Federal Credit Union and endanger the credit union’s relationship with GW students and staff.
The court will decide if credit unions like NIH extend beyond the scope of the Federal Credit Union Act of 1934, which stipulates that members of a credit union must have a “common bond” such as an occupation, association or residence within a certain geographic area.
NIH Federal Credit Union President and Chief Executive Officer Lindsay Alexander said she thinks the Supreme Court will issue a ruling in January.
In 1982, credit unions were permitted to expand from their core clientele in an effort to keep them from failing during a recession. The credit unions expanded their membership to multiple groups that share a less specific common interest.
The debate came to a head when the American Bankers Administration claimed credit unions were misinterpreting the 1934 law and expanding beyond a “common bond.”
In 1996, a group of North Carolina banks filed a suit against AT&T Family Credit Union, claiming the credit union violated the Federal Credit Union Act. The credit union won that lawsuit, but the banks appealed. A judge then froze all credit union expansion and membership increases, according to Kenneth R. Smith, director of communications for the Maryland Bankers Association.
The D.C. Circuit Court of Appeals decided credit unions could acquire new members, but they could not expand the number of groups they accept, Smith said.
Alexander said GW approached the credit union in 1992 to initiate a relationship between the University and NIH FCU. The credit union serves 56 different employer groups, Alexander said.
Alexander said the Supreme Court has not announced a decision in the case, and that she believes a ruling will come in early January.
Credit unions are not waiting for the Supreme Court decision to decide their future. They are lobbying members of Congress to support a bill that will clarify the 1934 act.
“We have 125 co-sponsors or representatives for the bill, but we need 231 to introduce the bill into a committee,” Alexander said.
“I don’t think the credit unions will be able to get support for the bill,” Smith said.
Credit union officials anticipate the ruling will not eliminate credit unions, but could restrict their expansion.
Alexander said credit unions can function as nonprofit organizations, but they must set aside capital for reserves and are granted a tax exemption by the government. Credit unions do not have stockholders, which allows them to provide better loans and services, Alexander added.
“Credit unions represent no threat to banks because (banks) hold 95 percent of the deposit dollars in the U.S., while credit unions only hold two percent,” Alexander said.
“If credit unions wish to continue under their tax exempt status, they should obey the law and organize to serve only one clearly defined group,” Smith said
“With more than $330 billion in assets, the credit union industry no longer needs the protection and nurturing of the government,” he said.
Alexander said NIH could help GW set up its own credit union and could serve as the managing company to allow GW to offer a variety of services to its staff and students.
“GW has a large enough population to support a credit union, but it would be small and would not be able to offer a range of services,” Alexander said.