Partial defeat for National Credit Union Administration in US court battle

The ruling followed a lawsuit by the American Banking Association which opposed growth in credit unions’ field of membership

A legal battle in the US, between the National Credit Union Administration (NCUA) and the American Bankers Association, over the size of the field of membership permitted for credit unions, has brought mixed results in a federal ruling.

A federal judge in the US District Court upheld two portions of the NCUA’s rules but struck down two others, following a lawsuit launched by the ABA in December 2016.

Bankers had complained that some credit unions have grown too large, when their membership is supposed to be limited either by association or geographic area.

The two provisions struck down by Judge Dabney Friedrich were:

  • a measure that automatically qualified a combined statistical area of up to 2.5 million people to be a local community
  • and a provision that increased the population limit for rural districts to 1 million people.

But other provisions – one on serving core-based statistical areas without serving their urban core, and another adding “adjacent areas” to existing community fields of membership – were left in place.

The ABA had argued that the contested rules were in violation of  “Congress’ explicit instruction that community credit unions serve only a single, well-defined local community

“Instead, it declares that large regions including millions of residents and cutting across multiple states are single ‘local’ communities.”

It accused the NCUA of “a continuing effort … to expand the size of federal credit unions”.

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Welcoming the ruling, ABA president and CEO Rob Nichols said: “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 recognises that fact.

“We’re disappointed in the court’s decision to uphold with faint support NCUA allowing credit unions to avoid serving the urban core of metropolitan areas, and to expand beyond their local communities to serve adjacent areas. This 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.”

But national credit union trade groups – including the National Association of Federally-Insured Credit Unions, the Credit Union National Association and CUNA Mutual Group – criticised the ruling in a joint statement.

“Our organisations are pleased the court upheld components of the NCUA’s field-of-membership rule; however, we strongly disagree with the court’s decision that aspects of the rule exceed the agency’s legal authority,” it said.

“The field-of-membership rule is not only entirely consistent with the Federal Credit Union Act, but also credit unions must have the ability to grow and serve more Americans. As the parties consider their options going forward, we will continue to support the agency on this critical issue.”

Ryan Donovan, CUNA’s chief advocacy officer, said: “The banking industry, led by ABA, has tried to put up roadblocks to credit unions serving American consumers,” Donovan said. “They’re actively seeking to keep people out of credit unions.”

Some voices in the credit sector have called on the NCUA to appeal against the decision.

The National Association of Federally-Insured Credit Unions said it “strongly supports all options to allow our members to grow and thrive.

“We continue to believe that the NCUA acted within its legal authority in issuing its regulations and would support an appeal. We are also supportive of other regulatory options.”

NCUA says it is considering its options, although others have warned that an appeal could provoke the ABA into continuing its fight against the measures which survived the judge’s ruling.



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