Is credit union regulator's field-of-membership appeal already in trouble?

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The National Credit Union Administration will get a second chance Tuesday to defend the field-of-membership regulation it enacted more than two years ago, but it may begin the proceeding at a disadvantage following an eleventh-hour argument by the American Bankers Association.

In court papers filed earlier this month, the ABA claimed the credit union regulator mooted a key part of its own appeal.

In March 2018, Judge Dabney Friedrich rendered a split decision on the agency's October 2016 field-of-membership rule , throwing out two banker arguments against it but ruling that the NCUA overstepped in two areas. The judge ruled against provisions that permitted rural districts of up to 1 million people and designated combined statistical areas with up to 2.5 million people as a well-defined community. The NCUA has appealed on both provisions.

But the ABA is claiming the credit union regulator lost the ability to appeal the combined statistical area provision because it did not include a reference to it when it revised its field of membership rule in September 2018. The banking industry group is essentially arguing the agency already scrapped that part of the plan.

“To say the least, it is odd that an agency should be able to repeal its own regulation while simultaneously demanding that a court proceed to adjudicate the validity of the repealed provisions,” Robert Long, a partner at Covington, the Washington firm representing the ABA, wrote in a brief filed April 4.

An ABA spokesperson declined to comment. An NCUA spokesperson also declined to comment citing the active litigation.

This latest challenge between the NCUA and the banking industry traces back to December 2016. The ABA filed suit in U.S. District Court for the District of Columbia challenging four provisions of the October 2016 regulation. Friedrich's decision narrowed it to two, but the remainder are still the subject of appeal.

The NCUA says the ruling against those two provisions impacted about 40 credit unions. The agency's field of membership regulation governs federal credit unions, but not state-chartered institutions. As of Dec. 31, about 63% of the 5,375 credit unions operating nationwide were federally chartered. Credit union membership totaled 116.3 million on Dec. 31, up 21% from the same time in 2013.

In response to Long's April 4 filing, NCUA General Counsel Michael McKenna noted J. Mark McWatters and Rick Metsger, the NCUA board members who approved both the October 2016 and September 2018 field of membership rules, intended “to re-enact the definition of ‘local community’ vacated by the district court if the court of appeals reversed" the decision.

But Metsger left the board April 8, the same day Rodney Hood was named chairman and sworn in alongside new board member Todd Harper. Both will serve alongside McWatters until his term expires in August.

“NCUA’s statement that 'it is the NCUA’s intention to reinstate the challenged definition of ‘local community’ is actually based on the General Counsel’s consultation with only one of the three individuals who would vote on such a proposal,” Long wrote.

In an April 8 filing, Department of Justice attorney Daniel S. Aguilar characterized the September field-of-membership rule as a good-faith effort to comply with the District Court decision. If the appeals court agrees with the ABA, the NCUA’s ability to adopt a future definition involving combined statistical areas would be handicapped, since Friedrich’s negative decision would remain in place, Aguilar added.

“Dismissal … would not only preclude the agency from adopting the definition it concluded was appropriate but would cast a cloud over efforts to adopt a future alternative definition,” Aguilar wrote.


The NCUA announced its intent to appeal Friedrich’s ruling in May and filed the document in December. The decision prompted the ABA to launch a cross-appeal, challenging one of the two provisions of the October 2016 rule that Friedrich upheld. The group took aim at the judge's conclusion allowing credit unions to serve a portion of a core-based statistical area while excluding the actual urban core.

In his March 18 cross-appeal, Long alleged the provision “effectively authorizes credit unions to engage in redlining” since “urban areas often include high concentrations of low-income individuals and racial minorities.”

The NCUA’s appeal will be heard by a three-judge panel of the U.S. Court of Appeals in Washington.

The legal battle has drawn in banking and credit union trade groups. The National Association of Federally-Insured Credit Unions, the Credit Union National Association and CUNA Mutual Group filed amicus briefs in support of the NCUA, while the Independent Community Bankers of America filed one backing the ABA.

The community banker group sued the NCUA in September 2016, claiming a member business lending rule allowed credit unions to exceed commercial lending limits set by Congress. That case ended in January 2017 with a decision upholding the rule.

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