Court upholds credit union membership rule; regulator to provide guidance

The federal regulator of credit unions said it was pleased with a Tuesday decision by a federal appeals court upholding the agency’s rules for membership in credit unions, turning back a challenge by the banking industry.

In a statement, National Credit Union Administration (NCUA) Board Chairman Rodney Hood said the agency is still reviewing the decision issued by the D.C. Circuit Court of Appeals in American Bankers Association v. NCUA. “The NCUA is pleased with today’s Court of Appeals decision,” Hood said. “In the near future, we will provide guidance for affected credit unions.”

In its ruling, the D.C. Circuit Court said that NCUA holds “vast discretion to define terms because Congress expressly has given it such power.”

However, the court also stated that the authority is not boundless. “The agency must craft a reasonable definition consistent with the Act’s text and purposes,” the court stated.

In May of last year, NCUA filed an appeal of a March 29, 2018, federal district court ruling vacating two provisions of the agency’s chartering and field-of-membership (FOM) rule that had been in effect since February 2017. The rule was adopted in 2016.

The court, however, upheld two other provisions the bankers challenged in the 2018 decision.

The two portions vacated by the court last year include a provision that qualifies a “combined statistical area” with fewer than 2.5 million people as a “local community” that can be served by a credit union; and one raising to 1 million people the population limit for rural districts that may be served.

Following the district court’s ruling last year, NCUA told the court that, while the court’s order was in effect, the agency would not grant any new community charters under the vacated rule provisions. NCUA had also instructed affected credit unions during that time not to accept any new members who would only be eligible for membership under those provisions. It would not, however, require credit unions to de-list members who became members on or before April 4, 2018.

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