The process for the National Credit Union Administration (NCUA) to change its field of membership (FOM) rule has taken nearly four years, but the credit union regulator finally got some certainty when the Supreme Court declined to hear an appeal made by the American Bankers Association (ABA) to the rule.
NCUA promulgated the rule in October 2016, but the banking association filed suit two months later, and the rule has been debated in court since.
The decision will uphold the D.C. Circuit Court of Appeals’ decision that the rule’s provisions defining combined statistical areas (CSAs) and rural districts as “local communities” are reasonable and in line with NCUA’s statutory authority, citing the doctrine of Chevron deference, which gives wide latitude to administrative agencies to interpret their authorizing statutes.
“Today’s decision by the Supreme Court ends nearly four years of uncertainty and will help the NCUA in its efforts to foster greater financial inclusion for all Americans,” NCUA Chairman Rodney Hood said in a release. “The NCUA will begin processing field-of-membership applications affected by this decision immediately.”
Since 2010, the NCUA has provided credit unions with two uniform, nationally recognized, objective geographic units that meet the statutory criteria of a well-defined local community, neighbor or rural district: the first option is a “Single Political Jurisdiction” that doesn’t take population into consideration while the second option is a single U.S. Census Bureau-designated Core Based Statistical Area or one more Metropolitan Divisions within, or a well-defined portion of either one, subject in any case to a 2.5 million population limit.
The new rule allows credit unions to serve Combined Statistical Areas of up to 2.5 million people and rural districts with up to 1 million people.
ABA argued that the practice could raise redlining issues – an area in which the appellate court agreed – and to remedy the situation, Hood said in September 2019 that the agency would phase in the FOM and proposed to amend the rule by:
- Re-adopting a provision allowing applicants to determine combined statistical areas (CSAs), or individual, contiguous portion CSAs, as well-defined local communities, provided that the chosen areas have populations of 2.5 million or less;
- Further explaining its reasons for eliminating the urban-core requirement for local communities based on CBSAs, as stipulated in the 2016 FOM rule; and
- Granting express authority for the NCUA to reject a credit union application for CSAs and CBSAs if the agency determines that the FOM selection reflects discrimination (the ABA had argued that the 2016 rule would allow credit unions to engage in redlining; NCUA said this addresses that concern).
Credit union advocates expressed their support for the decision.
“Today is a great day for anyone hoping to access the financial well-being afforded by credit unions,” Credit Union National Association (CUNA) President and CEO Jim Nussle said in a statement. “In denying the bankers’ lawsuit, the court has established credit unions’ mission and structure as part the fabric of America. In recognizing the NCUA’s right to oversee our system, the court has also established a much-needed firewall from spurious attacks by the bankers. CUNA looks forward to working with the NCUA and credit unions to find new opportunities to expand people-over-profit financial services to communities across the country, and thanks the court for today’s decision.”
“This is fantastic, and we applaud the Supreme Court for correctly rejecting the bankers’ appeal,” added CUNA Mutual Group President and CEO Robert Trunzo. “This is a great win for credit unions and consumers during what could possibly be the most challenging period our nation and world have faced. As we continue to navigate through this extraordinarily difficult time, the court’s decision will ensure people have continued access to vital credit union services as they seek to build a brighter financial future.”
National Association of Federally-Insured Credit Unions President and CEO Dan Berger said the decision from the court indicated the ABA case “is and has always been a baseless one.”
“For years, bank lobbyists have been unrelenting in their hollow efforts to maximize their own profits by working to undermine credit union growth and the financial well-being of America’s communities and small businesses. NAFCU stands firmly in support of the NCUA’s field of membership rule,” Berger stated. “It is well within the agency’s legal authority and works in favor of consumers, especially those that are underserved.”
Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey said the decision by the court could affect urban communities.
“Today’s Supreme Court decision not to review a National Credit Union Administration rule that could have a discriminatory impact on urban communities is another reminder that Washington and Americans nationwide need to ‘Wake Up’ to the realities of tax-exempt credit unions.
“While the courts have granted considerable rulemaking discretion to agencies under the ‘Chevron doctrine,’ the NCUA’s flawed plan would allow taxpayer-subsidized credit unions to include wealthy suburbs of metropolitan areas in their fields of membership while cutting out their urban cores. Meanwhile, it would drastically enlarge credit unions’ geographic reach by defining entire states and major metro centers as rural districts.”
Romero Rainey said the agency had not addressed the redlining concerns which had been raised by ABA.
“The NCUA has yet to address redlining concerns with its rule, which is just the latest example of the credit union industry’s captive regulator bowing to the growth-obsessed financial firms it is charged with regulating at the expense of local communities,” she stated. “Through its ‘Wake Up’ campaign, ICBA will continue encouraging policymakers to open their eyes to the risky practices, costly tax subsidies, and irresponsibly lax oversight of tax-exempt credit unions and how far credit unions have strayed from the original purpose underlying their tax exemption.”