Bankers Declare Limited Victory in FOM Lawsuit; Vow to Continue Fight

The American Bankers Association Tuesday declared a limited victory in its lawsuit challenging the NCUA’s Field of Membership rules and vowed to continue to fight credit unions that want to expand their reach.

“The court affirmed the basic principle that NCUA approval of field of membership expansions is not limitless,” ABA President/CEO Rob Nichols said. “We will review the ruling in detail as we determine our next steps to ensure NCUA doesn’t violate the expansion parameters set by Congress.”

Credit union trade groups said they were pleased with the ruling.

The U.S. Court of Appeals ruled Tuesday that Congress gave the NCUA broad authority in issuing rules governing fields of membership.

The ABA and state banking associations had filed suit challenging the rule and a U.S. District Court voided portions of the rule.

The appellate court overturned much of the lower court’s ruling.

However, the court also ruled that the NCUA must better explain the part of its rule stating that credit unions may serve core-based statistical areas without serving the area’s urban core.

The ABA had argued that section of the rule would allow credit unions to engage in “redlining” and would permit them to exclude underserved areas from their fields of membership.

“We are pleased that the D.C. Circuit recognized the potential redlining risks that are created when credit unions try to exclude the urban core from their communities,” Nichols said. “We agree with the court’s warning that this ‘gerrymandering’ may disenfranchise poor and minority suburban residents by making it difficult for them to receive adequate financial services, and find it concerning that NCUA would actually propose a regulatory ‘license’ to do such a thing.”

Nichols said that the ABA disagrees with the court’s ruling that states a local community may be larger than a county. He said the ABA is pleased that the appeals court left open the option for challenges to how the agency applies the “local community” definition.

In summing up the ruling, the Independent Community Bankers of America said, “The NCUA rule significantly expands the service areas in which community credit unions can do business.”