Kentucky Supreme Court: CUs Can Have FOM Based on Geography

The Kentucky Supreme Court overturned a lower court ruling that stated the Kentucky Department of Financial Institutions (DFI) lacked authority to grant fields of membership (FOM) based on geography.

Home Federal Savings and Loan Association sued the Kentucky regulator arguing that state law did not permit community-based FOMs for state-chartered credit unions.

When the legislature amended the Kentucky credit union statute in 1984, it changed the field of membership requirement so that "[c]redit union membership shall be limited to persons having a common bond of similar occupations, association or interest."

The circuit court granted summary judgment in favor of Home Federal, after concluding that DFI was no longer authorized to charter credit unions with geographic fields of membership. The court found that 1984 amendments to the statute omitted the model act's language that expressly allowed geographic and several other specific fields of membership. This omission caused the lower court to conclude that the legislature had "considered and rejected the option of allowing community based, or geographic, fields of membership" when it amended the statutes .

However, the Kentucky Supreme Court in its opinion concluded that the legislative change in the field of membership went “from specific, narrow allowable categories to more generic language. This indicates a legislative intent to broaden the allowable categories of membership … so long as they could reasonably be understood to fit within the current language of the statute.”

The Supreme Court decision focused around the concept of common bond of shared interest.

The Supreme Court opined that "a group of persons share the same hobby or enjoy novels by the same author, while technically a shared interest, is insufficient to demonstrate the common bond required to form a credit union. The shared interest in such cases does not link such persons in any substantial way or create any sort of financial or legal interdependence."

However, geographic connection is different. "Persons who live in the same neighborhood or rural farming district do have a concrete shared interest that demonstrates a common bond."

Thus, the court found a geographic or community field of membership is permissible under state law.