Expansion or status quo? No clear path after field of membership win

After years in limbo, credit unions may finally be set to begin widespread field-of-membership expansions following last week’s court decision on the matter, despite the possibility that bankers may appeal the ruling – a move which could ultimately lead all the way to the U.S. Supreme Court.

“I think credit unions are going to move forward,” said Carrie Hunt, EVP of government affairs and general counsel at the National Association of Federally-Insured Credit Unions. “I know for a fact that CUs have applications that are waiting for approval,” she added.

Much of the industry has been in a holding pattern over the rule for years following the American Bankers Association’s initial challenge to the rule in which two key provisions were struck down. Tuesday’s appellate decision was by and large a victory for credit unions, but attitudes are split as to whether the floodgates will kick open on field-of-membership expansion or if most of the industry will continue its wait-and-see approach. That’s especially critical given that some institutions that had previously attempted to make use of the new rules ultimately had to reverse course.

Because a portion of the rule regarding core populations was remanded back to a lower court, NCUA must still either explain to the court why that provision isn’t redlining – a key part of the American Bankers Association’s argument against the rule – or remove it entirely. Once that happens though, said Hunt, credit unions are likely to move forward full bore “the minute that NCUA issues its final rule.”

NCUA officials declined to comment when asked how the agency planned to respond to the court’s request.

The ABA has 45 days to file a motion for an en banc hearing following last week’s decision, in which the full slate of judges on the bench would reconsider the matter. Lucy Ito, CEO of the National Association of State Credit Union Supervisors, suggested that because of the limited time frame leading up to such a hearing, “I don’t expect to see credit unions 45 days from now already submitting applications; it takes time to put these applications together,” she said. “But I don’t think it makes sense for credit unions to wait.”

But not everyone agreed the ruling would compel credit unions to finally move forward.

"Based on early feedback from credit union CEOs, there seems to be a desire to let the legal dust settle and wait until any potential banker appeals materialize before definite plans are made,” noted John McKechnie, a credit union consultant at Total Spectrum and a former staffer at NCUA and the Credit Union National Association.

That was echoed by Lance Noggle, senior director of advocacy at CUNA, who pointed out “there’s a history of litigation here and I have no idea what the ABA will do, but you’re talking a few months until they make an appeal.”

If the bankers hope to move their case all the way up to the Supreme Court without a rehearing in front of the D.C. Circuit Court, he pointed out, they have 90 days from the date of decision to do so, but those deadlines are routinely extended by up to 60 days, meaning there may not be any clarity on the next legal steps until well into the new year.

Friends in high places?

Regardless of what happens with any appeals from the bankers, once the rule is in place it could kick-start a pet project of NCUA Chairman Rodney Hood: increasing access and advancing financial inclusion for consumers in rural areas. The new rule broadens the number of members that can be served in a rural district to up to 1 million people, while portions of combined statistical areas can go as high as 2.5 million. But NCUA will need to issue guidance to credit unions in order to clarify these rules before CUs can proceed with certain issues, and that is unlikely to happen until the dust settles on any further legal action.

Beyond the potential for growing the movement, one possible side effect of the court’s ruling, said Ito, is the possibility that the revised FOM rule could place additional pressure on state charters, which often have lower population limits compared to those available to federally chartered institutions utilizing the new rule. While a slew of state legislatures have updated their state CU laws recently – including Washington and Kansas so far in 2019, along with Idaho, Michigan and others in the last few years -- Ito said the rule could force states to ensure they are offering their institutions the most competitive chartering option available.

Rick Metsger, the former NCUA chairman who helped write the rule, suggested the court’s decision reiterates Congress’s faith in the regulator, particularly at a time when bankers continue to argue that the industry has moved far beyond its initial charter as written in the Federal Credit Union Act.

“Going forward, it strengthens and reaffirms the agency’s position that they have the ability to do these things,” he said.

Still, the ABA is likely to continue to push that line of thinking, particularly if it seeks an appeal all the way up to the Supreme Court. If the issue makes it that far, though, credit unions may have reason for optimism. Chief Justice John Roberts advocated for the industry 21 years ago in the legal battle that led to the passage of the Credit Union Membership Access Act back in 1998.

And that history of victories over the banks, some say, is reason for credit unions to hope history is on their side, even if the bankers do attempt an appeal.

Dennis Dollar, a credit union consultant and former NCUA chairman, said “The banks have unwisely invested so much in this legal action that they are almost certain to appeal even though the results have now turned out exactly as most without an axe to grind … predicted they would.”