A federal judge on Thursday struck down two provisions of the National Credit Union Administration's embattled field of membership regulation, ruling that certain parts of it were "unreasonable and manifestly contrary to statute."

But the decision was not a complete victory for the American Bankers Association, which had sued to block the rule, as Judge Dabney Friedrich also upheld other provisions of the rule.

Friedrich said the rule should not have automatically qualified a statistical area with fewer than 2.5 million people as a local community and sharply criticized the rule's allowance of a rural district as an area up to 1 million people, even if it crossed state lines.

"Because the rule automatically qualifies areas larger than states as rural districts even though the term commonly referred to areas smaller than a county, the NCUA’s definitional decision is unreasonable and manifestly contrary to the statute," said Friedrich, who ruled on behalf of the U.S. District Court for the District of Columbia.

A federal judge struck down two provisions of the NCUA's field of membership rule.


The American Bankers Association touted the decision as a win, albeit a partial one.

“It never made sense that an entire region could be declared a ‘local community’ or that an entire state could be declared a ‘rural district,’ and today’s ruling recognizes that fact,” Rob Nichols, the trade group's president and CEO, said in a press release.

“Today’s decision also affirms what we have known for years — NCUA won’t hesitate to push the boundaries of reason for the credit union industry even at the expense of taxpayers, small banks and the communities those banks serve," Nichols said.

National credit union trade groups — including the National Association of Federally-Insured Credit Unions, the Credit Union National Association and CUNA Mutual Group — quickly released a joint statement that criticized the ruling while promising to continue to fight to support the NCUA’s rule.

"Our organizations are pleased the court upheld components of the NCUA's field-of-membership rule; however, we strongly disagree with the court's decision that aspects of the rule exceed the agency's legal authority," the groups said in a statement. "The field-of-membership rule is not only entirely consistent with the Federal Credit Union Act, but also credit unions must have the ability to grow and serve more Americans. As the parties consider their options going forward, we will continue to support the agency on this critical issue."

Friedrich upheld provisions that allow credit unions to serve core-based statistical areas without serving the urban core that defines the area, and the ability to add “adjacent areas” to existing well-defined local communities on a case-by-case basis. Though even here, Friedrich sounded a note of caution, saying that the definition of core-based statistical areas "pushes against the outer limits of reasonableness."

The ABA originally filed its lawsuit in December 2016. CUNA, NAFCU and CUNA Mutual jointly filed an amicus brief last June supporting the rule and NCUA’s cross-motion for summary judgment.

This was the fourth time the ABA has successfully sued the NCUA over its membership policies. One of those lawsuits — NCUA v. First National Bank & Trust Co. in 1998 — was argued before the U.S. Supreme Court and led directly to the Credit Union Membership Access Act of 1998.