HARRISBURG, Pa. (9/29/09)--The Commonwealth Court of Pennsylvania Monday overwhelmingly affirmed the state Department of Banking's procedures and decision to grant two credit unions--TruMark Financial CU and Freedom CU--expansions of their fields of membership (FOM) to community charters. The case began in 2003 when both credit unions received community charters to serve members in five counties in the Philadelphia metropolitan area. Banks and their state trade association intervened and a series of hearings before the department and court cases made their way through the state court system. The current case was remanded from the Supreme Court. The central concern of this case was the definition of a "well-defined local community" in determining whether the credit unions could expand. The banks claimed the banking department's decision was not supported by substantial evidence and denied them due process by limiting their access to only documents voluntarily disclosed by the credit unions. The court was not persuaded by any of the banks' arguments. Instead, Judge Robert Simpson cited the federal parity provision found in the state law that "allows a state-chartered credit union to create, amend or expand its field of membership as authorized by Section 109 of the Federal Credit Union Act, 'subject to reasonable conditions, limitations and restrictions as may be imposed by the department including, but not limited to, conditions, limitations and restrictions based on safety and soundness.'" "We reject banks' contention that this statutory language was meant to limit the department's discretion in dealing with community membership conversions. To the contrary, the plain language of the federal parity provision preserves for the department discretion to impose its own reasonable conditions, limitations and restrictions," wrote Judge Simpson. Neither the federal regulation nor NCUA Manual provides a clear method to assess integration and shared community interests in determining the community, said the decision. The term "local" is "not as narrowly interpreted as banks would like. The federal regulation…specifically provides that charters consisting of 'multiple counties or local areas with populations of any size' may meet the community requirements… In view of the expansive language of the federal regulation, we cannot state that the department's broad application is prohibited," said the decision. The court noted that "a reasonable mind could conclude based on the evidence presented that the proposed community is a well-defined local community for purposes of credit union field of membership. Therefore, we must reject banks' assertions that substantial evidence does not support the department's orders approving credit unions' conversion notices." One argument made by banks was that the department failed to undertake an analysis of the tax consequences of the credit unions' expansion. The court found "no indication that the General Assembly harbored an unexpressed intention that the department undertake a tax analysis," and said "an implied duty of tax analysis is inconsistent with the department's express duty to act on matters within the narrow 60-day time period provided in the Credit Union Code…We presume the General Assembly did not intend such an unreasonable result." The banking department "did not deny banks due process," said Simpson, citing credit unions' voluntary disclosure to banks of information about whether the five-county area was a "well-defined local community." "After notice, there was a full hearing on this issue… Thus, the issue of well-defined local community was robustly litigated here, and all parties received all process due on that issue." The court noted the "current controversy between banks and credit unions arises from the federal parity provision. Therefore, it is helpful to keep in mind the process available where a federal-chartered credit union seeks to convert its membership field. Usually there is no disclosure of confidential credit union information, even where there is a Freedom of Information Act request." He noted "our conclusions regarding the process due in proceedings before the department may therefore be compared to process due before the NCUA." The court also rejected banks argument that their right to intervene based on public interest extends beyond safety and soundness to an inquiry of all requirements for community charter conversions in the NCUA Manual. The "language of the Credit Union Code does not support such a broad reading…" and "in the absence of clear direction from our Supreme Court or from the General Assembly, we are reluctant to allow the unelected administrators of the NCUA to redefine the 'public interest' which triggers due process protections in proceedings before the department." Banks also "did not prove that the community-based credit unions will have an unfair competitive advantage or that they will lose customers to credit unions." Banks had a chance to prove harm in the original jurisdiction part of the case but discontinued the alternate proceedings. Judge Simpson noted that the procedures in the case included "additional safeguards which reduce any risk of erroneous deprivation of the public interest." The safeguards included a full hearing on "well-defined local community," which addressed the General Assembly's "basic requirement of a common bond for all credit unions," and the department's receipt of evidence from banks as to the safety and soundness of credit unions' proposed conversions. Unless the banks appeal this decision to the Pennsylvania Supreme Court, all of the field of membership cases brought by the banks against the Department of Banking will have ended in a final disposition and/or been dismissed.