Iowa Credit Union League v. Iowa Dept. of Banking
| Decision Date | 28 June 1978 |
| Docket Number | No. 60827,60827 |
| Citation | 268 N.W.2d 165 |
| Parties | IOWA CREDIT UNION LEAGUE and John Deere Employees Credit Union of Waterloo, Iowa, Petitioners-Appellees, v. IOWA DEPARTMENT OF BANKING, Respondent-Appellant, Iowa Bankers Association, Intervenor-Appellant. |
| Court | Iowa Supreme Court |
Richard C. Turner, Atty. Gen., and Elizabeth A. Nolan, Asst. Atty. Gen., for appellant Dept. of Banking.
Thomas, Schoenthal, Davis, Hockenberg & Wine by A. Arthur Davis and John A. Templer, Jr., Des Moines, for appellant Bankers Ass'n.
Hansen, Wheatcraft & McClintock by Ronald A. Riley, Des Moines, and Ralph S. Swoboda, Madison, Wis., for appellees.
Stewart, Wimer & Bump by Richard W. Berglund and Langley, Dunn, Mountain & Sellers, Des Moines, for Iowa Independent Bankers, amicus curiae.
Considered en banc. *
In this appeal we must decide whether Iowa law authorizes credit unions to engage in the share-draft business.
I. The evidence discloses that credit unions constitute an extension of the cooperative movement into the saving-borrowing area. An idea was conceived to create nonprofit organizations consisting of members who were employees of a plant or business, residents of a vicinity, or other defined group. The member-savers could place funds with the organization and the member-borrowers could thereupon borrow at reasonable interest rates, to the benefit of both groups. Thus the credit unions came into being.
The primary purposes of credit unions are to receive funds of members and to lend funds to members. These basic functions are stated in the first and second of the original and present powers of credit unions listed in § 533.4 of the Iowa Code, stating that a credit union shall have power to:
1. Receive the savings of its members either as payment on shares or as deposits, including the right to conduct Christmas clubs, vacation clubs, and other such thrift organizations within the membership.
2. Make loans to members for provident or productive purposes.
(The other five of the seven original powers were to make loans to cooperative societies, to make deposits in banks, building and loan associations, and other credit unions, to invest in certain securities, to borrow under certain restrictions, and to assess fines against members.)
During the forepart of this century the credit union movement spread across the country in the form of state statutes authorizing such organizations. The Iowa legislature adopted such a statute in 1925 in chapter 176 of the Acts of the 41st General Assembly. In broad outlines the statute remains the same as then. Code 1977, ch. 533 (). Section 533.1 states the definition and purposes of a credit union thus:
A credit union is hereby defined as a co-operative, nonprofit association, incorporated in accordance with the provisions of this chapter for the purpose of creating a source of credit at a fair and reasonable rate of interest, of encouraging habits of thrift among its members and of providing the opportunity for people to use and control their savings for their mutual benefit.
The membership of Iowa credit unions consists of the incorporators and also persons within the eligible group who are elected to membership, subscribe for at least one share, and pay the membership fee if any. § 533.5. Each member has one vote in credit union affairs. § 533.7. Some Iowa credit unions are small and are operated by part-time employees; some are large.
While credit unions have remained basically the same in principle, their functions have expanded to the present 18 statutory powers enumerated in § 533.4.
When a person obtains a qualifying membership share, he may place additional funds in "shares" or in "deposits". § 533.4(1). Shares may be of different classes. § 533.1(1)(c). Apparently shares place members in a position akin to that of stockholders, while deposits place members in a position similar to creditors. § 533.22(1)(c) and (d).
A. From an economics standpoint, the appeal involves competition for funds by credit unions and banks. We have no concern of course with advancing the fortunes of one of these types of financial institutions over the other. The legislature authorized establishment of both of such types of institutions. Our sole concern is to construe the organic act authorizing credit unions to determine whether it contemplates that they may engage in the share-draft business. The act does not do so expressly.
Specifically, the appeal does not involve the first basic function of credit unions: receiving members' funds. Nor does it involve the second basic function: lending those funds to members. Rather, according to the credit unions' contention the appeal involves an aspect of the credit unions' function of repurchasing part of the shares of their members.
Strangely, although the credit union statute spells out 18 powers of credit unions it nowhere states that as a matter of ongoing business credit unions may repurchase some of a member's shares or repay some of his deposits. The founders of the cooperative credit union movement evidently did not visualize credit unions as "in and out" financial institutions like banks, but rather as less liquid organizations having little account activity on the savers' side; apparently the thought was that member-savers would place their funds with their credit unions for periods of time, to be lent to member-borrowers. This appears from the presence of statutory provision for removal of funds only in one situation: termination of membership. Section 533.19, which is similar to § 19 of the original act, bears the title "EXPULSION WITHDRAWAL", placed there by the legislature itself. The section provides:
A member may be expelled by a majority vote of the board of directors at a regular or special meeting of the board. The expelled member may request a hearing before the membership of the credit union. A meeting of the membership shall be held within sixty days of the member's request. The membership may, by majority vote at the membership meeting, reinstate the expelled member upon terms and conditions prescribed by it. Any member may withdraw from the credit union at any time but notice of withdrawal may be required. All amounts paid on shares or as deposits of an expelled or withdrawing member, with any dividends or interest accredited thereto, to the date thereof, shall, as funds become available and after deducting all amounts due from the member to the credit union, be paid to him. The credit union may require sixty days' notice of intention to withdraw shares and thirty days' notice of intention to withdraw deposits. Withdrawing or expelled members shall have no further rights in the credit union but are not by such expulsion or withdrawal, released from any remaining liability to the credit union.
Situations inevitably arose in which a member desired to have some of his savings but did not wish to withdraw from membership. While the statute did not expressly authorize credit unions to repurchase part of a member's shares or repay all or part of his deposits except in the expulsion-withdrawal situation, credit unions actually did so, perhaps purporting to act under power 11 of § 533.4 which was added by amendment in 1947 as § 6 of the Acts of the 52nd General Assembly: a credit union shall have power to
11. Exercise such incidental powers as may be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.
In any event, today no one questions the authority of credit unions to repurchase some of a member's shares or to repay all or some of his deposited funds.
More recently some credit unions have launched into a new business activity share drafts. They base their authority on an expansion of the credit unions' practice of repurchasing some of a member's shares. A typical share-draft form is appended.
The credit unions contend this new share-draft activity resulted from developing programs for direct deposit in one depository of payments to a person by a governmental unit or employer. If the depository account is a checking account in a bank, the account owner may then check out those funds to creditors such as merchants or may indeed have the bank directly pay creditors such as public utilities. Credit unions contend that if they cannot engage in third-party business transfer members' funds from shares or deposits to third persons they are at a competitive disadvantage in acquiring direct deposit business.
The record indicates, however, that direct deposit programs constitute but one of a number of improved services by the various financial institutions in the competitive struggle for funds. The credit unions in response have themselves developed improved services. The major one they wish to undertake today is the share-draft business. The problem in Iowa is that they did not obtain prior statutory authorization. Therein lies the issue: is an amendment to their statutory powers necessary?
B. The record shows that the share-draft business possesses two main distinguishing characteristics from the present mode of removal of funds by members of credit unions. One is that it brings third persons into the process. While the credit unions cite instances in which they have paid removed funds to a third person at a member's request, the whole removal process until share drafts has been largely one between the member and the credit union, frequently by passbook.
A second distinguishing feature is the "business" character of share-draft activity. Heretofore removal of funds has been largely a matter of individual transactions, whereas the share-draft business is a continuous activity. The credit unions cite the ninth enumerated power in § 533.4, that unions may make contracts. Under the contract power the credit unions contend that a member who...
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