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ABA Goes Down on the Battlefield (of Membership)

By Sam Griswold - December 17, 2019

Court Rules in Favor of NCUA on FOM Updates


Last Thursday, the U.S. Court of Appeals for the D.C. Circuit denied a rehearing en banc in the case of the American Bankers Association vs. the NCUA. En banc is a hearing before all appellate judges rather than a panel consisting of a subset of the judges.

The ABA earlier last week submitted a letter to the NCUA reiterating its strong opposition to its most recent amendments made to the agency’s field of membership rules. In addition, the Independent Community Bankers of America called on the NCUA to “withdraw and redraft” the rule, citing concerns over discrimination.

The ruling appears to bring an end to what has been a three-year legal saga over credit union FOM expansion. The original NCUA rule was finalized in October of 2016 and promptly challenged by the ABA, when the banking lobby group sued the agency just two months later.

The argument focuses on two of the rule’s provisions regarding Well-Defined Local Communities: one that would allow credit unions to serve Combined Statistical Areas of up to 2.5 million people and rural districts with up to one million people; and the other concerning the removal of a requirement for credit unions to serve the urban-core of a Core-Based Statistical Area.

In August, the D.C. Circuit Court of Appeals overturned a previous opinion by U.S. District Court for the District of Columbia by ruling in favor of the CSA-related amendment. The court asked that the NCUA present further information with regard to the second. In October, the ABA filed a petition with the U.S. Court of Appeals for the D.C. Circuit for a rehearing en banc of the lawsuit.

The NCUA’s response came late last month in which the agency addressed both concerns, re-adopting the provision regarding CSA definitions and proposing an amendment to the Chartering Manual to require an applicant for conversion or expansion to explain why it has selected its FOM and to demonstrate that its selection is not based on discriminatory intent.

In its letter to the NCUA, the ABA wrote it “believes that both these proposals are seriously flawed and urges that they be withdrawn, unless significant modifications resolve the problems with the proposals.” The trade association claims the amendments violate credit unions’ requirement to have a common bond.

ICBA President/CEO Rebeca Romero Rainey outlined concerns about potential redlining, stating, “The NCUA’s flawed proposal allowing credit unions to discriminate against urban areas is the latest example of this captive regulator bowing to the growth-obsessed financial firms it is charged with regulating at the expense of local communities.”

The proposals were strongly backed by the credit union community. A letter from CUNA read, “CUNA fully supports the NCUA’s proposal to re-adopt the CBSA presumptive well-defined local community option that it originally adopted in the 2016 Final Rule.”

Additionally, the association “also agrees that NCUA’s further explanation and support for its elimination of the core area service requirement for CBSAs in the 2016 Final Rule meets the requirements set forth in the D.C. Circuit Court of Appeals’ decision.”

Mahlet Makonnen, regulatory affairs counsel for NAFCU, likewise said her organization supported these changes and believed they addressed the court’s concerns. “The proposed changes to the Chartering Manual are consistent with the Federal Credit Union Act’s text and rationally advances the FCU Act’s purpose of enhancing the public benefit that citizens receive,” she wrote.

“As a result,” Makonnen continued, “the proposed changes would facilitate consumer access to credit unions and provide relief from restrictions on a FCU’s ability to provide products and services to underserved communities.”

CUNA President/CEO Jim Nussle called the outcome “another major win for credit unions and the 117 million members they serve.”

Dan Berger, president/CEO of NAFCU, also reiterated his support and stance on the case, stating, “The Appeals Court decision reaffirms what we already know: The NCUA’s FOM rule is well within the agency’s legal authority.”

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