NCUA Says It Has Power to Define ‘Local Community’ in FOM Case Appeal

The NCUA board “reasonably exercised” its power to define “local community,” and a federal judge should not have ruled otherwise, the agency said in documents filed in a federal appeals court Thursday.

The documents were filed as part of the agency’s appeal of a federal judge’s ruling that threw out portions of the NCUA’s revised Field of Membership rule. The American Bankers Association challenged the rule.

However, U.S. District Judge Dabney Friedrich also upheld separate portions of that same rule; the ABA is appealing that ruling. Tthe bankers have not yet filed their appeal brief.

Friedrich threw out a provision of the field of membership rule that increases to one million people the population limit for rural districts. She also threw out a provision of the rule that automatically qualified a “Combined Statistical Area” or a contiguous portion of it with fewer than 2.5 million people to be a local community.

NCUA disagreed.

“Congress has further given the National Credit Union Administration, the agency that oversees federal credit unions, authority to promulgate regulations to define what constitutes a ‘well-defined local community, neighborhood, or rural district.’”  the NCUA said in its brief.

“Congress authorized federal credit unions to serve local communities, neighborhoods, and rural districts, and simultaneously granted the National Credit Union Administration authority to define those statutory terms,” the brief continued.

Friedrich attempted to define terms using definitions found in such areas as state laws and state court opinions, the NCUA said, adding that if Congress had expected the agency to use those definitions, it would have said so.

The ABA is appealing a portion of the rule dealing with allowing credit unions to add members in an adjacent area under certain circumstances.

That section of the rule allows a credit union serving a Single Political Jurisdiction, Core-Based Statistical Area, or Combined Statistical Area to add an adjacent area as long as the credit union can demonstrate if the credit union can demonstrate that a “sufficient level of interaction” exists between the adjacent area and the already-served area.

Friedrich said that the NCUA chose “reasonable factors” for evaluating whether adjacent areas should be included.

In her ruling she also said that in the past, the NCUA defined a portion of a Core-Based Statistical Area as part of a local community if it included the core of the area. The new rule deletes that requirement.

The judge said that while she is troubled by that new definition, the agency has broad discretion to define “local community.”

Credit union trade groups have said they support the agency’s appeal.

“NAFCU remains a staunch advocate of the NCUA’s legal authority to modernize credit unions’ fields of membership, and we strongly support the NCUA during this appeal process,” said NAFCU President/CEO B. Dan Berger. “We will continue to support the agency’s efforts to keep credit unions competitive and allow them to grow and will be filing an amicus brief to support the NCUA in the FOM lawsuit.”