Banks Win Challenge to Rule Expanding Credit Union Membership

By Lydia Beyoud

A federal court handed bankers a win in their bid to overturn a 2016 rule seen as expanding credit union membership.

The U.S. District Court for the District of Columbia ruled March 29 that the National Credit Union Administration (NCUA) exceeded its authority under the Administrative Procedure Act in how it established two out of four geographic definitions, those for “local community” and “rural district.”

The American Bankers Association and other banking groups challenged the rule. Banks and credit unions compete over membership, but banks argue credit unions receive a competitive advantage due to tax exemptions.

Specifically, the NCUA’s approaches regarding “combined statistical areas” (CSAs) and rural districts used to establish a credit union’s potential membership base “are manifestly contrary to the Act,” Judge Dabney L. Friedrich said in the opinion.

‘Gerrymandered’ Membership

The NCUA argued it had the authority to define local communities as CSAs or a portion of them, which it did in the rule, subject to a 2.5 million-person limit. The rule defined rural areas as up to 1 million people, an increase from 250,000.

However, the NCUA’s rule would have allowed credit unions to exempt cities or other population hubs, or “cores” from determining their potential geographic membership base.

“As a result, the NCUA cannot prevent a gerrymandering credit union from serving the far-flung perimeter of the largest” geographic areas or their metropolitan divisions, Friedrich said.

The rule’s population increase in its definition of rural district would allow some districts to be nearly the size of western states, including all of Wyoming. “Not only are these areas geographically expansive, they also capture numerous urban centers,” the judge said. That definition “is unreasonable and manifestly contrary to the statute,” Friedrich said.

American Bankers Association President and CEO Rob Nichols welcomed the decision. “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,” he said in a March 29 statement.

Credit union trade groups said they would consider their next steps while continuing to support the agency on the rule.

“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,” the presidents of the National Association of Federally-Insured Credit Unions, the Credit Union National Association and CUNA Mutual Group said in a joint statement March 29.The NCUA is considering its options on the two vacated sections, agency spokesman John Fairbanks said. In the meantime, “the agency is contacting the credit unions whose charters will be adversely affected by the decision,” Fairbanks said March 30 in an e-mailed statement.

The case is: Am. Bankers Ass’n v. Nat’l Credit Union Admin. , D.D.C., 16-2394 (DLF), 3/29/18 .

To contact the reporter on this story: Lydia Beyoud in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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