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CU System
Kentucky court DFI cant grant community charters
FRANKFORT, Ky. (11/3/08)—A Kentucky appeals court judge dealt a blow to credit unions recently when he sided with a lower court with a ruling that, in effect, says the state Department of Financial Institutions (DFI) can’t grant community charters. The case was brought by Home Federal Savings and Loan Association against the DFI in May 2006. The bankers argued that state law does not permit community-based FOMs for state-chartered credit unions. The bankers claimed the DFI has violated the separation of powers doctrine in the Kentucky constitution by approving community-based FOMs for state-chartered credit unions, Kentucky Credit Union League (KCUL) President Wendell Lyons explained when the league joined the suit in 2007. On Oct. 25, 2007, the Kentucky Circuit Court for Franklin County sided with the plaintiff and ruled that the DFI exceeded its statutory authority when it approved geographic fields of membership for six state-chartered credit unions between 2000 and 2005. The Credit Union National Association (CUNA) joined the suit in appeal in April of this year by filing an amicus brief that argued, in part, that the lower court incorrectly applied federal administrative law precedent, instead of Kentucky administrative law, to deny the DFI judicial deference. And the court further erred, CUNA argued, because, if correctly applied, the federal precedent would have compelled the court to back the state regulator under judicial deference. CUNA General Counsel Eric Richard said CUNA got involved in the case because the lawsuit was part of a pattern in which bankers have been challenging community charters in state courts around the country. In addition to Kentucky, Richard noted, multiple cases have been brought in Missouri, since resolved by state legislation, and in Pennsylvania. KCUL’s Lyons said of the ruling Friday, “We are obviously disappointed in the Appeals Court ruling. We will keep all options on the table. We will be gathering our legal team and then we'll decide on the best course of action for Kentucky's state-chartered credit unions.” Richard added, "We will work with the Kentucky League and the affected credit unions to analyze the court's opinion and assess options that protect consumers' right to choose credit union service. The impact of this case will likely be limited to Kentucky because the Kentucky Credit Union Act has unusual field of membership language that is not very close to the language of other laws around the country."


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