POSITION

While the recent Supreme Court ruling in National Credit Union Administration v. First National Bank & Trust, et al., __ U.S. __ (1998) does not strictly apply to Michigan state-chartered credit unions, the bureau's interpretation of the Michigan Credit Union Act field of membership provisions is consistent with the ruling.

BACKGROUND

The field of membership provisions of the Federal Credit Union Act (Federal Act) have recently been interpreted by the United States Supreme Court in the NCUA case.

The NCUA case involved the NCUA's interpretation of the Federal Act and its approval of the field of membership of the AT&T Family Federal Credit Union. The NCUA had permitted AT&T FFCU to have multiple unrelated occupational groups within the credit union's field of membership.

The issue, on the merits of the case, before the Court was whether the NCUA reasonably interpreted the field of membership language of the Federal Act.

Applying the test stated in Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Court said when the intent of Congress was clear, an agency may not interpret a statute. The crux of the NCUA case fell on whether the intent of Congress was clear in the Federal Act to allow such a field of membership.

Federal Act Field of Membership:

The applicable section of the Federal Act, section 109, limits membership in a federal credit union as follows:

"Federal credit union membership shall be limited to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district."

In summary, the Court said because the field of membership section of the Federal Act was clear on its face, the NCUA's interpretation was impermissible. The Court reasoned: "the NCUA's interpretation makes the phrase 'common bond' surplusage when applied to a federal credit union made up of multiple unrelated employer groups, because each 'group' in such a credit union already has its own 'common bond'."

Further, the Court stated the NCUA's interpretation violated the rules of federal statutory construction. The Federal Act limits credit union membership to either:

1. groups having a common bond of occupation or association, or

2. groups within a well-defined neighborhood, community, or rural district.

Even though the second limitation would permit a federal credit union to be comprised of members from more than one group, all the groups must be from the same neighborhood, community, or rural district. To allow a federal credit union to be composed of members from more than one unrelated geographic area would render the geographic limitation meaningless, the Court said.

The Court determined it must interpret the occupational limitation in the same way. To allow a federal credit union to be composed of unrelated occupational groups would render the occupational limitation meaningless.

Thus, each group comprising a federal credit union's field of membership must share the same common bond of occupation or association or be within the same well-defined neighborhood, community, or rural district.

Michigan Credit Union Act:

The Supreme Court's ruling, however, does not apply to Michigan's state-chartered credit unions. First, the ruling interprets only the Federal Act, not the Michigan Act. More importantly, the field of membership language of the Michigan Act significantly differs from that of the Federal Act.

The Michigan Act, at section 5, limits Michigan credit union membership as follows:

"Credit union organization shall be limited to groups, of both large and small membership, having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district and 1 or more credit unions may be organized to serve those groups. A community credit union may be organized whose field of membership is composed of individuals who have a common bond based on relatively close geographical proximity to one another, personal acquaintance among the residents, and the existence of a community of interests, activities, and objectives."

The Michigan Court of Appeals, in Casazza v. Department of Commerce, 134 Mich App 249 (1984) provided guidance in interpreting the Michigan Act. The Casazza case involved a challenge to the Commissioner's approval of a state-chartered credit union's expansion of its field of membership.

In Casazza, the Court of Appeals stated:

• The Michigan Act only applies to the "organization" of a credit union.

• The Michigan Act does not prohibit a credit union from changing its field of membership.

• The Michigan Act "permits a single credit union to have a field of membership consisting of employees of more than one group as long as the composition of each group is based on a single criterion."

• "In establishing permissible fields of membership, economic viability [of the credit union] must be considered."

• The intent of the Michigan Act is "to encourage growth of credit unions and increases in membership."

In addition, the bureau has a long-standing policy on the matter. Three credit union bulletins outline the bureau's field of membership policy regarding new charters or expansions of existing charters, including mergers of existing credit unions.

Michigan's Common Bond:

The bureau's policy as stated in Credit Union Bulletin 83-1 outlines the common bond prerequisites for chartering or expanding an existing credit union. The credit union must have a common bond based on one of the following:

1. Group(s) within a common employer or groups(s) within a common occupation.

2. Membership in a single organization or groups associated with a common interest.

3. Groups within a well-defined neighborhood, community, or rural district.

4. Community credit union.

Further, in an Addendum to Credit Union Bulletin 83-1, the bureau has adopted a "25-mile radius from a credit union's main office or branch office" as a standard for the well-defined neighborhood, community, or rural district for purposes of the multiple group fields of membership. The 25-mile radius, however, is not the minimum area that a credit union may serve, nor it is the maximum that might be justified under appropriate circumstances.

It is also the bureau's policy that credit unions with a field of membership comprised of a well-defined neighborhood, community, or rural district must attempt to serve diverse segments of the service area including low-income and minority groups.

Mergers Permitted:

Unlike the Federal Act, the Michigan Act, at section 20a(1), specifically authorizes the merger of existing credit unions regardless of the continuing credit union's field of membership.

In accordance with Credit Union Bulletin 83-2, the Commissioner will approve the merger of two credit unions if any of the following exist:

1. There is a commonality of bond among the members of the merging credit unions,

2. A new field of membership is approved for the surviving credit union, or

3. One of the merging credit unions is insolvent or in imminent danger of becoming insolvent.

Bureau Policy In Accord With Supreme Court Ruling:

The pertinent language of the Michigan Credit Union Act, which is over 70 years old, along with the Michigan Court of Appeals decision in Casazza, and the three policy statements enunciated in credit union bulletins, provide a clear and concise framework of the bureau's position on implementing the field of membership provisions of the Michigan Act.

A Michigan state-chartered credit union must have a field of membership consistent with the Michigan Act at the time of organization. A credit union may change its field of membership during its existence and may retain its previous members. For example, a credit union may change from an occupational credit union to a community credit union.

A credit union may also merge with another state or federal credit union. In a merger situation, either the membership of each merging credit union must have a commonality of bond or the surviving credit union must have an approved new field of membership, except if the merger involves an insolvent credit union or one in danger of becoming insolvent.

The bureau's position is well established. Except for specific situations involving mergers authorized under the Michigan Act, it is the policy of the Bureau that the members of a Michigan state-chartered credit union must have a common bond.

CHECK OUR WEB SITE

The Michigan Credit Union Act, Credit Union Administrative Rules, and Credit Union Bulletins are available on the OFIS Web site at http://www.michigan.gov/cis/1,1607,7-154-10555---,00.html.