Federal Appeals Court Upholds Huge Portion of FOM Rule
The appeals court overturns parts of a lower court’s decision finding the agency overstepped its bounds in amending the FOM rules.
A federal appeals court on Tuesday dismissed virtually all of the American Bankers Association’s challenge to the NCUA’s Field of Membership updates, saying that Congress gave the agency wide discretion to make those decisions.
“The NCUA possesses vast discretion to define terms because Congress expressly has given it such power,” the U.S. Appeals Court for the District of Columbia said, in its decision. “But the authority is not boundless. The agency must craft a reasonable definition consistent with the Act’s text and purposes.”
NCUA Chairman Rodney Hood said he was pleased with the ruling and credit union trade groups said in a joint statement that the ruling represents a major victory.
The appeals court overturned parts of a lower court’s decision that found that the agency overstepped its bounds in amending the FOM rules.
However, the appeals court sent once section of the rules, one dealing with the elimination of the urban-core requirement for local communities based on Core Based Statistical Areas, back to the lower court. The appeals court said that the NCUA should be given an opportunity to better explain that part of the rule.
The appeals court deemed that requirement to be “arbitrary and capricious.”
The ABA and other bankers’ groups had challenged the overhaul of the agency’s Field of Membership rule, saying that it obliterated the difference between banks and credit unions. Congress intended credit unions to serve limited Fields of Membership in exchange for their tax-exempt status, they argued.
The appeals court did not buy that argument.
“In this facial challenge, we review the rule not as armchair bankers or geographers, but rather as lay judges cognizant that Congress expressly delegated certain policy choices to the NCUA,” Judge Robert Wilkins said, in writing for the appeals court.
The appeals court upheld a portion of the rule that increases to one million people the population limits for rural districts. U.S. District Judge Dabney Friedrich had ruled against the NCUA in that rule change.
The appeals court also upheld a portion of the rule that allowed Combined Statistical Areas as local communities. Friedrich also had voided that section of the rule.
The court said that credit unions should not be required to have “exceedingly” close ties with its members.
“A credit union with exceedingly close ties among its members is unlikely to have a large enough customer base to thrive economically,” Wilkins wrote. “To the extent that such tension exists, the Act leaves to the NCUA to strike a reasonable balance. Congress was well aware that a viable credit union might serve a relatively large geographical area.”
Hood said the agency is still reviewing the ruling and will provide guidance to affected credit unions in the near future.
However, CUNA, NAFCU and the CUNA Mutual Group called the decision a major victory for credit unions.
“This will have a positive impact for the industry’s 117 million members and American consumers who now have better access to member-owned not-for-profit credit unions,” the groups said, in a joint statement. “For the one aspect of the rule that the court asked for more explanation, we are confident the agency will provide additional support.”