A federal judge said Thursday he will wait until early next year to rule on a motion by the National Credit Union Administration that asks him to dismiss a lawsuit challenging its recently revised member business lending (MBL) regulation.
Judge James C. Cacheris' comment followed a 90-minute hearing at the United States Courthouse in Alexandria, Va. , related to the Independent Community Bankers of America's (ICBA) lawsuit filed Sept. 7, arguing NCUA defied Congress when it included a provision in the updated MBL rule that excludes commercial loans or loan participations made to nonmembers from counting against a cap that limits the size of a credit union's member business loan portfolio to about 12.25% of total assets.
NCUA, which filed a motion to dismiss the legal challenge Nov. 3, has long permitted credit unions to make loans or loan participations to nonmembers, even when they exceeded the cap -- however, prior to March, when the agency's board voted unanimously to approve the overhauled regulation, credit unions had to obtain a waiver whenever a loan pushed them past the12.25% threshold.
That cap was imposed by Congress as part of the 1998 Credit Union Membership Access Act, and credit unions have sought to remove or raise the cap ever since. While that would require an act of Congress, the agency's recent overhaul of the MBL rule made a number of changes aimed at facilitating CUs' efforts to continue growing their business lending efforts.
At the Thursday hearing, U.S. Attorney Andrew Biernie argued ICBA waited about seven years too long to object to the loan participation policy, since NCUA first disclosed it back in 2003. Generally, a party has six years to object to such an interpretation, Bierney said, adding that in this instance, the clock stopped ticking in 2009.
"We want agencies to be able to refine and improve their regulatory schemes," Biernie said. "It would be counterproductive if every time they did so, they had to rehash a number of previously decided policies."
But ICBA's counsel, Steven G. Bradbury, a partner at the Washington-based law firm Dechert LLP, countered it was NCUA itself that opened the door for a re-examination when it dispatched with the waiver it used to require for participations that exceeded the cap.
"This is an entirely new rule," Bradbury said. "It replaced in its entirety the previous rule… Before, credit unions had to obtain a waiver to make these kinds of loans. Now, it's laissez faire."
Biernie also argued that ICBA lacked standing to sue since the revised regulation won't take effect until January. No evidence exists to prove the changes will produce the finding of imminent or certain harm required in order to overturn the MBL regulation, he said.
Bradbury, though, argued that since the rule change will have the effect of loosening an existing standard, ICBA and the banks automatically possess standing to sue.
"Any increase in competition provides the basis for standing," he said.
Although member business loans remain a relatively small portion of credit unions' overall lending activities, totaling $63.9 billion at Sept. 30, they've been growing rapidly in recent years. NCUA officials see business loans as an attractive means to diversify a portfolio heavily reliant on consumer loans. Banks view them as an unfair assault by a tax-advantaged competitor.
Camden R. Fine, ICBA's president and CEO, accused NCUA of "mischaracterizing" his group's case, "which is both timely and ripe for resolution."
"Our case against the NCUA's unlawful commercial lending rule is strong, as indicated by the agency's attempts to bend over backward to evade judicial review," Fine said in a press release.
The two national credit union trade groups, Credit Union National Association and the National Association of Federal Credit Unions, issued their own statement Thursday expressing confidence in the agency's position. "We are confident that NCUA acted well within its authority when it issued its member business lending rule. The CUNA/League system and NAFCU will continue to defend the NCUA's authority to interpret the Federal Credit Union Act."
Rather than dismiss the case, Bradbury asked Cacheris to accept motions from both parties and their legal allies seeking a summary judgement.
The member business lending rule is not the only regulation NCUA has to defend against banker wrath. Last week, the American Bankers Association filed suit in U.S. District Court in Washington challenging the field of membership regulation NCUA approved Oct. 27.