Compliance Blog

Categories: NCUA

Field of Membership Litigation Update

You read the title correctly. The compliance team is here (yet again) with another field of membership litigation update!

Last week, the U.S. Supreme Court denied an appeal from the American Bankers Association (ABA) to void NCUA’s field of membership (FOM) rule, a decision that marks the end of a nearly four-year attempt by the ABA to undo NCUA’s FOM rule.

In case you’ve lost track (don’t feel bad), here’s a recap of litigation starting with the 2016 FOM rule.

NCUA, in October 2016 issued a final rule with the purpose of updating field of membership requirements and streamlining procedural and regulatory hurdles. The final rule made major changes to the way credit unions could define geographic areas for membership. Soon after it was published, the ABA filed suit challenging multiple portions of NCUA’s rule, including the definition of “local community,” the ways in which credit unions could use all or part of a combined statistical area (CSA) for defining membership boundaries, and the increase in the population limit for rural districts to 1 million people.

In March 2018, the U.S. District Court struck down part of NCUA’s rule stating that the rule exceeded NCUA’s statutory authority. The portions of the rule said to exceed authority included those that automatically qualify a combined statistical area with fewer than 2.5 million people to be a local community and the increase to 1 million people the population limit for rural districts. Two other provisions were upheld in the original decision. Due to the court’s findings, many credit unions were stripped of certain FOM statements and many other charter applications were put on hold. After this decision, both the ABA and NCUA appealed.

In August 2019, the U.S. Court of Appeals for the D.C. Circuit disagreed with part of the decision of the district court and decided in NCUA’s favor regarding the two provisions that were struck down by the U.S. District Court. Although the appeals court ruled partly in favor of NCUA’s 2016 FOM rule, it allowed NCUA to continue to implement the rule while revising it to clarify arbitrary provisions and address other issues identified by the court. In accordance with the court’s findings, NCUA made some adjustments and proposed an updated version of its FOM rule.

The rule NCUA proposed in October 2019  was meant to:

  • “re-adopt a provision to allow an applicant to designate a combined statistical area (CSA), or an individual, contiguous portion CSA, as a well-defined local community, provided that the chosen area has a population of 2.5 million or less;”
  • provide further explanation and support for eliminating the urban-core requirement for local communities based on CBSAs, as provided for in the 2016 FOM rule; and
  • provide express authority for the NCUA to reject a credit union application for CSAs and CBSAs if the agency determines that the FOM selection reflects discrimination (this provision was meant to address the concern that the 2016 rule would allow credit unions to engage in redlining).

Following the appeals court decision in support of NCUA, the ABA appealed again. However, the U.S. Court of Appeals for the D.C. Circuit decided not to rehear the case. This led the ABA to request that the U.S. Supreme Court hear the case.

This brings us to 2020… whew.

Because the U.S. Supreme Court has refused to hear the ABA’s appeal, the ABA has exhausted its avenues for continuing this litigation. This means NCUA can finally move forward with re-adopting some of the provisions published in 2016 along with the amendments made in 2019 to satisfy the U.S. Court of Appeals’ request for clarity.  

In line with what NAFCU has asked, NCUA announced it is reinstating the rural districts for the credit unions that had these removed due to pending litigation. NCUA stated, “for any federal credit union with a rural district field of membership application held during the litigation period, NCUA will resume processing these applications.” NCUA’s CURE office has been working with federal credit unions to submit field of membership requests.

About the Author

Loran Jackson, NCCO, Regulatory Compliance Counsel, NAFCU

Loran Jackson, Regulatory Compliance Counsel

Loran Jackson was named regulatory compliance counsel in April 2019. In this role, Jackson helps NAFCU members with a variety of federal regulatory compliance issues.

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