ABA Wins on Two Counts in Credit Union Field of Membership Lawsuit

A U.S. District Court judge today invalidated a portion of the National Credit Union Administration’s field of membership rule that further expanded the already loose fields of membership from which federal credit unions can draw their customers. The rule, adopted in late 2016, allowed community credit unions — which Congress by statute limited to serving a single “well-defined local community, neighborhood, or rural district” — to serve large regions encompassing multiple metropolitan areas with populations in the millions.

Judge Dabney Friedrich declared invalid and vacated two aspects of the rule that the American Bankers Association challenged in a lawsuit against NCUA: the inclusion of Combined Statistical Areas with fewer than 2.5 million people, and the dramatic expansion of a “rural area” to include areas with up to 1 million people — which in some cases could encompass entire states. She noted that NCUA’s actions in these areas “are manifestly contrary to the [Federal Credit Union] Act.”

“It never made sense that an entire region could be declared a ‘local community’ or that an entire state could be declared a ‘rural district,’ and today’s ruling recognizes that fact,” said ABA President and CEO Rob Nichols. “Today’s decision also affirms what we have known for years — NCUA won’t hesitate to push the boundaries of reason for the credit union industry even at the expense of taxpayers, small banks and the communities those banks serve.”

ABA also challenged the ability of credit unions to serve Core-Based Statistical Areas without serving the urban core that defines the area, and the ability to add “adjacent areas” to existing well-defined local communities on a case-by-case basis. Judge Friedrich upheld both of those provisions, concluding that “neither [are] in excess of the agency’s statutory authority nor arbitrary and capricious.” She added, however, that “the approach to Core-Based Statistical Areas pushes against the outer limits of reasonableness.”

Nichols expressed disappointment in the court’s decision to uphold these provisions, which he said would “allow credit unions to cherry pick communities and ignore serving people of modest means, which is fundamental to the original purpose of the credit union tax exemption.”

ABA has been successful in three previous lawsuits challenging the NCUA, arguing repeatedly that the regulator has overstepped its limits. The association said it will continue its pursuit of a level playing field with credit unions both in and outside the courts, including leveraging recent comments by several tax experts and a letter from Senate Finance Committee Chairman Orrin Hatch (R-Utah) to NCUA that question whether the industry’s tax exemption remains relevant. For more information, contact ABA’s Dawn Causey, Tom Pinder or Brittany Kleinpaste.