Bankers may turn to Supreme Court in credit union membership suit

After suffering a setback Thursday, the American Bankers Association is considering appealing its challenge to a credit union membership regulation all the way to the Supreme Court.

The ABA’s legal bid against the National Credit Union Administration’s revised field of membership rule — a dispute now entering its third year — appeared to hit a dead end on Thursday when the U.S. Court of Appeals for the District of Columbia denied bankers' request for an en banc hearing. But ABA officials on Friday said the group is “evaluating our options,” including appealing to the nation’s highest court.

“We continue to believe the NCUA regulation oversteps the statutory requirements for credit union field of membership,” ABA spokesman Jeff Sigmund said Friday.

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The agency said it was pleased with Thursday's ruling but did not address the possibility of a Supreme Court appeal.

An en banc rehearing would have allowed the ABA’s lawyers to argue its case before all 11 of the appeals court’s judges. The court denied the request in a one-sentence per curiam order. Should the banker group make another appeal and the Supreme Court agrees to hear the case, it is not clear whether the court would hear this case during the current term or the next, beginning in October 2020.

“The bankers have the right to appeal, but the courts have already spoken clearly," Ryan Donovan, chief advocacy officer at the Credit Union National Association, said in an email.

A three-judge panel heard the case in April, then handed down an opinion in August that largely overturned the opinion of a district court judge who had ruled in the ABA’s favor on two of the four points at issue.

In the Aug. 20 decision, the Court of Appeals reversed Judge Dabney Friedrich’s April 2018 ruling invalidating sections of the field of membership rule that increased the population threshold for rural districts to 1 million, and permitted combined statistical areas with populations of 2.5 million or less to automatically qualify as well-defined local communities.

Banks pay close attention to the NCUA’s field of membership policies since they determine the limits on the size of the communities and groups credit unions can serve. The agency revised its field of membership regulation in October 2016. The ABA filed suit in U.S. District Court for the District of Columbia two months later.

The sole consolation bankers got from Judge Robert Wilkins, who wrote for the three-judge panel in August, was a request for the NCUA to justify a provision in the rule that permits credit unions to exclude the urban cores of core-based statistical areas. In its argument, the ABA claimed doing so might encourage redlining. Though he stopped short of reversing the provision, Wilkins wrote that he saw “merit” in the redlining contention.

In response, the NCUA’s board approved additional proposed changes to the field of membership regulation in October. The new measure, which is awaiting final approval, would give the agency authority to reject proposed applications involving core-based and combined statistical areas if it found them to be discriminatory or evidencing a desire to exclude low- and moderate-income individuals.

More than 70 banks and banking groups, including the ABA and the Independent Community Bankers of America, submitted comment letters critical of the proposed rule. Most echoed the ABA’s argument that credit unions should not be permitted to exclude urban cores from their fields of membership.

Jim Nussle, president and CEO of the Credit Union National Association, called Thursday's ruling "another major win for credit unions."

In a statement Monday, ICBA President and CEO Rebeca Romero Rainey characterized the proposed rule as the “latest example of this captive regulator bowing to the growth-obsessed financial firms it is charged with regulating at the expense of local communities.”

But Dan Berger, Romero Rainey’s counterpart at the National Association of Federally-Insured Credit Unions, noted credit unions have no history of redlining or discrimination. "Unlike for-profit banks, credit unions do not have a history of engaging in discriminatory practices,” Berger said Thursday. "Today’s appeals court decision reaffirms what we already know: The NCUA's FOM rule is well within the agency’s legal authority.”

Other industry groups did not immediately respond to a request for comment on the possibility that the ABA might appeal to the Supreme Court.

This story was updated at 3:58 P.M. on Dec. 13, 2019.