stands. As a result of the longer holds allowable on share drafts, the challenged provision will likely cause credit union share drafts to be judged an unacceptable or less favorable form of payment by some people and businesses to whom they are given in payment for goods and services. In turn, some members of credit unions may terminate their share draft accounts and open checking accounts at competing banks and savings and loan associations. Additionally, in the ever-increasing competition between financial institutions, some banks and savings and loan associations will likely distinguish the holds allowable on their checks from those allowable on share drafts in disclosure statements and sales literature, luring credit union members to terminate their share draft accounts and open checking accounts at those competing institutions.
Should Regulation CC remain in effect as promulgated, the credit unions also contend that they will be compelled to make the costly conversion to using local check processing banks or to process their own share drafts in-house, in order to avoid the stigma of the longer holds caused by the use of specialized nonlocal payable through banks. Dearborn's board of directors has already determined that it will convert to in-house processing if Regulation CC is implemented as promulgated. According to plaintiffs, the necessary change in processing of share drafts will produce economic injury and diminish their effectiveness as competitors with banks and other financial institutions. The use of specialized national payable through banks, such as Chase Manhattan Bank, not only provides credit unions with access to the Federal Reserve System, it also provides an economical and expeditious means for processing share drafts.
The Board characterizes plaintiffs' allegations of threatened injury as speculative and hypothetical, stating that it is conjectural to say that the third parties on which the injury depends will react to the challenged regulation in the manner feared by plaintiffs. The Board argues that the repercussions feared by plaintiffs were capable of occurring in equal measure prior to Regulation CC. In the same vein, the thrust of the amicus brief is that in all the fourteen years of share drafts' existence, the discrimination against share drafts feared by plaintiffs has been entirely lawful, but has not occurred.
In order to satisfy the injury requirement of standing, the plaintiffs need make "a credible allegation that plaintiff's course of behavior will be harmed" by the likely actions of third parties caused by this regulation. Griles, supra, 824 F.2d at 12. The Court is required to ascertain whether the response of depository institutions and credit union members will in turn affect the plaintiffs' intended behavior. Id. In this case, the plaintiffs have made a credible allegation that in the rough-and-tumble of competition between financial institutions, there is a sufficient threat of injury flowing from the regulation to credit unions that use nonlocal payable through banks to withstand a standing challenge. The regulation permits banks to treat payable through share drafts as nonlocal items, even though the credit union on which they are drawn is local to the bank. This in turn will permit the banks to impose longer holds on payable through share drafts, making them in all likelihood less desirable forms of payment. Further, in order to remain competitive with local banks, should Regulation CC remain in effect, plaintiff Dearborn has already determined the necessity of converting its share draft processing to an in-house operation, which will cause the nonprofit credit union to spend $ 300,000 that it otherwise would not have to spend.
The Court holds that the plaintiffs have made out sufficient allegations of threatened injury to withstand the motion to dismiss. The Board itself has acknowledged the potential for a lower level of acceptability of share drafts as a result of the regulation. See 53 Fed. Reg. 19,391. The potential harm to credit unions that use nonlocal payable through banks exists, in the threat of lost customers and the otherwise unnecessary expense of changing their processing methods. This threat of injury is not "unadorned speculation," Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 44, 48 L. Ed. 2d 450, 96 S. Ct. 1917 (1976). Indeed, plaintiffs face a "realistic danger" of injury as a result of the regulation's implementation. Pennell v. San Jose, 485 U.S. 1, 108 S. Ct. 849, 855, 99 L. Ed. 2d 1 (1988).
2. Zone of Interests
Plaintiffs contend that their interests are also within the zone of interests to be protected by the Act. The Board does not challenge this assertion. The ABA suggests, however, that the injury threatened is not arguably within a zone of interests protected or regulated by the statute. The Bankers base their argument on the fact that the Expedited Funds Availability Act is narrow in scope and was consumer-driven in its inception. But the Act was passed as part of the Competitive Equality Banking Act of 1987, which clearly is broad in scope.
The ABA's argument must be rejected. The credit unions and other depository institutions arguably are the "subject of the contested regulatory action." Clarke v. Securities Industry Association, 479 U.S. 388, 107 S. Ct. 750, 757, 93 L. Ed. 2d 757 (1987). The credit unions' interests are not "so marginally related to or inconsistent with the purposes implicit in the statute that it cannot reasonably be assumed that Congress intended to permit the suit." Id. The test for standing does not rely on whether the plaintiff was meant to benefit by the statute. No doubt, Congress intended consumers to benefit from the Act. But it is clear that the credit unions are arguably within the zone of interests to be regulated. See American Data Processing Service Organizations v. Camp, 397 U.S. 150, 153, 25 L. Ed. 2d 184, 90 S. Ct. 827 (1970).
The Board contends that the plaintiffs lack standing because there is not a substantial likelihood that the requested relief will redress the plaintiffs' alleged injuries. The Board asserts that a declaration that payable through share drafts drawn on local credit union accounts must be treated as local checks will not necessarily prevent the loss of credit union share draft accounts feared by the credit unions. Instead, the Board suggests that the depository institutions will exercise their right to refuse to accept an item for deposit. See 12 U.S.C. § 4006(c)(2)(A) (stating that no provision of the Act may be construed as affecting a depository institution's right to reject a check for deposit).
Plaintiffs correctly assert that the defendant cannot defeat their standing by arguing that a second and different injury will befall the credit unions if the Court grants them their desired result. Furthermore, the language of the provision preserving banks' right to refuse to accept "a check" for deposit, 12 U.S.C. § 4006(c)(2)(A), suggests that it is designed to protect banks from having to receive noncollectible items. That provision cannot be used by banks to reject an entire class of items, such as all share drafts. Plaintiffs need only demonstrate a substantial likelihood that the threatened injury they allege will be redressed by the relief sought. Duke Power Co. v. Carolina Environmental Study Group, 438 U.S. 59, 75 n. 20, 57 L. Ed. 2d 595, 98 S. Ct. 2620 (1978); Greater Tampa Chamber of Commerce v. Goldschmidt, 200 U.S. App. D.C. 205, 627 F.2d 258, 265 (D.C. Cir. 1980). The challenged regulation permits payable through share drafts to be treated as nonlocal items by banks otherwise local to the credit unions on which they are drawn. There is a substantial likelihood that a ruling that the nature of a payable through share draft must be determined by the location of the credit union on which it was drawn will redress the threatened injuries to the credit unions. For the foregoing reasons, the Court holds that plaintiffs have standing to challenge Regulation CC.
B. The Merits
Turning to the merits of the case, we must begin with a comparison of the language in the Act with the challenged regulation. As stated previously, the time within which funds must be made available depends on whether the deposited check is local or nonlocal to the depository institution. In the Act, Congress defined the "originating depository institution" as the branch of a depository institution on which a check is drawn. 12 U.S.C. § 4001(17). The Board has ignored and abandoned the statutory term, substituting its own term, "paying bank," and giving that term its own definition.
As a result, payable through share drafts may be treated as nonlocal items by a depository institution if the payable through bank is nonlocal, even if the credit union itself is local to the depository institution.
The first avenue of inquiry in a case of statutory construction is the language of the statute. If the language of the statute is plain and unambiguous, the Court's inquiry reaches a dead end, for the Court "must give effect to the unambiguously expressed intent of Congress." Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-43, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984). Moreover, if the statute is unambiguous, the deference traditionally accorded to agency interpretations will not come into play. Id. at 843.
In this case, the plain language of the Act dictates that the location of the institution on which a check is "drawn" determines whether it is local or nonlocal. The Board itself has acknowledged that at least in a technical sense the credit union is the originating depository institution on which a share draft is drawn. 53 Fed. Reg. 19,391. Furthermore, the Board is on the record as having referred to the credit union as the "organization on which a check is drawn" and the payable through bank as the place "where the check is sent for collection." 53 Fed. Reg. 47,113 (Dec. 11, 1987). The Board has now apparently concluded that the term "drawn" contains sufficient ambiguity as to warrant the change in terms. The alleged ambiguity is a fiction. The Board argues that the payable through bank performs many of the functions that might otherwise be performed by the credit union, making the payable through bank eligible for treatment as the institution on which a share draft is drawn. The fact remains, however, that it is the credit union that decides whether to pay or dishonor the share draft; the payable through bank is merely a collecting bank.
Common usage and commercial law provide a useful reference in determining the plain meaning of terms. In this case, both suggest that share drafts are never said to be drawn on or paid by the payable through bank. Under the Uniform Commercial Code, the "drawee" or "payor" institution is the one that holds the drawer's funds and which is requested to pay an item upon proper presentment. See U.C.C. § 4-105 & Official Comment 2. As applied to credit union share drafts, the drawee institution is the credit union, which decides whether or not the share draft will be honored. Indeed, the Board does not dispute that the credit union is a drawee institution with regard to its share draft accounts. See 53 Fed. Reg. 19,392. The payable through bank merely serves as a collecting agent, not authorized to pay the item, but only to present the share draft to the credit union. See Section 3-120 of the Uniform Commercial Code; see also B. Clark, supra, at para. 10.9[a].
The Board does not dispute that commercial law, as reflected in the UCC, supports the contention that the credit union is a drawee institution. The Board suggests, however, that the creation of the term "paying bank" in the Board's Regulation J, which is not at issue in this case, provides the basis for an alternative meaning of the term "institution on which a check is drawn." Under Regulation J, payable through banks and banks on which checks are drawn are treated the same for purposes of collection. At the outset, the Court notes that the Board first raised this "Regulation J" argument in its papers in this case. Hence, the argument does not merit much credence, as it resembles a post hoc rationalization. Nonetheless, the Court will address the argument.
The Board argues that there is evidence in the structure of the Act that Congress intended to adopt the "federal law" term "paying bank" of Regulation J. It must be noted, however, that although the term "paying bank" had been in existence for seven years at the time that Congress passed the Act, Congress did not choose to adopt the Board's terminology. In the context of credit union share drafts, the Board contends that Congress left a gap in the Act with respect to nondepository institutions that can only be cured by the substitution of "paying bank" as defined by the Board for "originating depository institution" as defined by Congress. The plaintiffs concur that the Act is unclear as to the treatment of drafts drawn on nondepository institutions, such as insurance companies. But plaintiffs are correct that any such gap does not extend to credit union share drafts, for credit unions are clearly depository institutions under the Act. See 12 U.S.C. § 4001(12).
As for common usage, even the dictionary definition relied on by the Board in creating the alleged ambiguity within the term "drawn" supports plaintiffs' contention that the plain meaning of the term involved in this case can only refer to the credit union. Black's Law Dictionary defines the drawee of a check is "the bank on which it is drawn" and the party "requested to pay the amount of money" stated in the check. Black's Law Dictionary 444 (5th ed. 1979). In the case of a credit union share draft, the institution on which it is drawn and which is requested to pay its stated amount can be none other than the credit union.
This case is reminiscent of the United States Supreme Court's recent rejection of the Board's redefinition of statutory terms defined within the Bank Holding Company Act. Board of Governors of the Federal Reserve System v. Dimension Financial Corp., 474 U.S. 361, 88 L. Ed. 2d 691, 106 S. Ct. 681 (1986). Dimension concerned "nonbank banks" -- institutions that offer services similar to bank services -- which much to the Board's dismay were not subject to the Board's regulation. The Board redefined the term "bank" in a manner contrary to the definition in the Bank Holding Act and the intent of Congress. Id. In a similar vein, the Board in this case substituted its own term, "paying bank," in a manner contrary to the Expedited Funds Availability Act and the intent of Congress.
The Court need not inquire into the legislative history of the Expedited Funds Availability Act because the phrase "depository institution on which a check is drawn" is clear and unambiguous. The statutory term universally refers to the institution that decides whether to pay or dishonor the item presented. Congress has directly spoken to the issue at hand, thereby eliminating the need for further inquiry by the Court. The institution on which a share draft is drawn is unquestionably the credit union.
It is equally unnecessary for the Court to accord deference to the Board's substitution of terms and redefinition, as the original term of the statute is clear and unambiguous. As was the case in Dimension, no amount of agency expertise can make the term at issue -- "depository institution on which a check is drawn" -- mean what the Board would have it mean.
To summarize, the Court finds that the plaintiffs have made credible allegations of a threatened injury fairly traceable to Regulation CC as promulgated. The Court further finds that there is a substantial likelihood that an order favorable to the plaintiffs will redress the threatened injuries. Based upon the foregoing, the Court holds that plaintiffs have standing to challenge Regulation CC. The Court further holds that Regulation CC as promulgated veers dramatically from the clear and unambiguous intent of Congress. In the Act, Congress chose the term "originating depository institution" and gave that term an unambiguous definition. Neither the Court nor the Board can substitute its judgment or its own terms for the judgment and plain language of Congress.
Date: July 27, 1988
ORDER -July 28, 1988, Filed
Upon consideration of plaintiffs' motion for summary judgment, the defendant's motion to dismiss, or in the alternative, for summary judgment, the oppositions thereto, the arguments of counsel in open court, and the entire record in this case, and for the reasons set forth in the accompanying memorandum, it is by the Court this 27th day of July, 1988,
ORDERED that plaintiffs' motion for summary judgment be, and hereby is, granted; and it is further
ORDERED that defendant's motion to dismiss, or in the alternative, for summary judgment be, and hereby is, denied; and it is further
ADJUDGED, DECLARED and DECREED that the definition of "paying bank" proposed in Regulation CC, 53 Fed. Reg. 19,435 (May 27, 1988) (to be codified at 12 C.F.R. § 229.2(z)), be, and hereby is, vacated and set aside to the extent that it defines "paying bank" to mean a depository institution other than the credit union on which a share draft is drawn.