The National Credit Union Administration’s defense of changes to a field-of-membership rule was challenged by a federal judge on Wednesday, suggesting an American Bankers Association lawsuit against the revisions may be successful.

Judge Dabney L. Friedrich questioned both sides closely in the first public hearing on a case filed by the banking trade group in December of 2016. But she appeared particularly skeptical of the NCUA’s position. At one point, she questioned how, under the agency’s rule, Salt Lake City could be considered part of a single district for a credit union’s rural field of membership.

“Salt Lake City is a huge city surrounded by rural districts. Why didn’t the agency carve it out?” Friedrich asked Andrew M. Bernie, the Justice Department attorney representing the credit union regulator. “How Salt Lake City can be considered as part of a rural district under any construction defies logic.”

“How Salt Lake City can be considered as part of a rural district under any construction defies logic," said Judge Dabney L. Friedrich, questioning the NCUA's representative on changes to its field of membership rule.

At another point, Friedrich raised questions about how the current definition of rural district would allow five entire states — Wyoming, Alaska, North Dakota, South Dakota and Vermont — to qualify as well-defined rural districts under the NCUA’s regulation.

“Can you give me any examples in case law in which a local community is larger than a state?” she asked Bernie.

Robert A. Long, the Covington & Burling partner working on the ABA’s behalf, later said that he could not uncover any definition in which a rural district was larger than a county.

“I have not been able to find one that’s as big as a state,” Long said.

At issue is an NCUA rule, finalized in October 2016, that expanded credit unions’ field-of-membership rule. The ABA challenged the regulation on several counts, but Friedrich zeroed in on two during her questioning: a provision permitting all or part of a combined statistical area to count as an acceptable field of membership so long as its population does not exceed 2.5 million, and a second increasing the population limit for rural districts fourfold, to 1 million.

Bernie argued that the NCUA was owed “a special measure of deference” in deciding what qualifies as an appropriate local or rural district since Congress left it up to the NCUA to define both terms in the Credit Union Membership Access Act of 1998.

He argued that the NCUA included cities in rural districts so that they would make economic sense.

“If you exclude population centers, you’re not going to have credit unions serving that district,” he said.

Friedrich acknowledged credit unions need to be able to “survive and grow” — but that rationale doesn’t permit the NCUA “to rewrite the statute,” she said.

Long, a veteran bank advocate who has argued 18 cases before the U.S. Supreme Court, faced some uncomfortable moments, too.

He had to backtrack on one argument seeking to prove that a provision in the revised field-of-membership rule that permits credit unions to serve parts of a core-based statistical area while excluding the core would result in service areas where members shared no meaningful common bond. Long had been using the Washington, D.C., region to illustrate his point, but under questioning from Friedrich he was forced to agree residents in adjacent suburban communities like Arlington, Va., and Bethesda, Md., could indeed share a number of interests.

“It’s rare for lawyers to make a concession,” Long said.

Long, however, maintained that NCUA’s rule might lead to more far-flung combinations since the rule as worded only requires that the component parts of a core-based statistical area don’t exceed the current population threshold of 2.5 million people.

The law, Long claimed, requires residents of locally chartered credit unions to share a meaningful affinity and bond, commonality of routine interaction and a well-understood sense of cohesion.

“It’s hard to see how that exists between Prince Georges County, Md., and Fauquier County, Va.,” Long said, referring to two areas reasonably close to D.C. but far away from each other. “It’s like that game ‘Six Degrees of Kevin Bacon.’ By the time you get to the end of the daisy chain, you’ve got people with nothing in common.”

The ABA seized on the fact that there is no mandate in the revised field-of-membership rule that such localities be contiguous. But Bernie claimed the NCUA’s internal policy, regardless of what was in the rule, required it. He dismissed Long’s claim that a commitment made in a legal brief possessed no legal standing.

“I agree that a representation in a brief is not a regulation, but when an agency represents in court through the Department of Justice that it understands a provision to be interpreted a certain way, that’s important,” Bernie said.

After about 90 minutes of oral argument, Friedrich gave both sides until Friday to submit follow-up paperwork covering points discussed in the hearing. She did not indicate when a ruling could be expected.

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