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American Bankers Association v. National Credit Union Administration

United States District Court, District of Columbia

March 29, 2018




         The Federal Credit Union Act limits membership in certain credit unions to persons or organizations within a “well-defined local community, neighborhood, or rural district” and requires the National Credit Union Administration (NCUA) to define that phrase by regulation. 12 U.S.C. § 1759(b)(3), (g)(1). At issue is an NCUA rule (the Rule) that broadens the agency's definitions of local community and rural district. 81 Fed. Reg. 88, 412, 88, 440 (Dec. 7, 2016).

         Before the Court are cross-motions for summary judgment filed by the American Bankers Association (ABA) and the NCUA. Dkt. 14; Dkt. 19. The ABA challenges four definitional decisions made by the NCUA in the Rule. The Court concludes that two of those definitional decisions violate the Administrative Procedure Act by exceeding the agency's statutory authority. Accordingly, the Court will grant in part and deny in part the ABA's motion for summary judgment, and will grant in part and deny in part the NCUA's cross-motion for summary judgment.

         I. BACKGROUND

         Federal credit unions are mutually-owned financial institutions chartered and regulated by the NCUA. They offer many of the consumer products and services offered by other depository institutions, such as the banks represented by the ABA. U.S. Dep't of the Treasury, Comparing Credit Unions with Other Institutions 19 (Jan. 2001). Federal credit unions and banks differ, however, in a few ways. Federal credit unions enjoy the advantage of exemption from federal, state, and local taxes, with few exceptions. 12 U.S.C. § 1768. But they face limitations on their commercial lending and securities activities, the terms of their interest rates, and-central to this case-the areas and categories of persons that they can serve. Id. § 1759; see U.S. Dep't of the Treasury, Comparing Credit Unions with Other Institutions 19.

         This case concerns community credit unions, which are federal credit unions limited to serving “persons or organizations within a well-defined local community, neighborhood, or rural district.” 12 U.S.C. § 1759(b)(3). In undertaking the cartographic challenge of defining the local community term, the NCUA has relied on statistical measures established by the Office of Management and Budget (OMB). Several geographic measures are relevant to this suit:

Core-Based Statistical Area is a category composed of the country's Metropolitan Statistical Areas and Micropolitan Statistical Areas.
o Metropolitan Statistical Areas are defined by the OMB as having “at least one urbanized area of 50, 000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties.” Office of Mgmt. & Budget, Bulletin No. 15-01 (July 15, 2015) [hereinafter OMB Bulletin No. 15-01]. They are “delineated in terms of whole counties (or equivalent entities).” Id. A surrounding county may be part of a Metropolitan Statistical Area only if at least 25 percent of its workers commute into the central county, or if at least 25 percent of the central county's workers commute to the surrounding county. 75 Fed. Reg. 37, 246, 37, 250 (June 28, 2010). The OMB cautions that Metropolitan Statistical Area delineations “should not serve as a general-purpose framework for nonstatistical activities.” OMB Bulletin No. 15-01.
o Micropolitan Statistical Areas are identical to Metropolitan Statistical Areas except that their urbanized areas are smaller. In a Micropolitan Statistical Area, the urbanized area (also known as the core), contains at least 10, 000 but fewer than 50, 000 people. Id.
o A Metropolitan Division is a subdivision of a large Metropolitan Statistical Area. Specifically, a Metropolitan Division is “a county or group of counties within a Metropolitan Statistical Area that has a population core of at least 2.5 million.” Id.
Combined Statistical Areas are composed of adjacent Core-Based Statistical Areas that share what the OMB calls “substantial employment interchange.” U.S. Census Bureau, Geographic Terms and Concepts, /gtc/gtccbsa.html. Two Core-Based Statistical Areas have the requisite interchange if their “employment interchange measure” is at least 15. The employment interchange measure is easiest understood with an example: if 8 percent of County A commutes to County B, and 7 percent of County B commutes to County A, the employment interchange is 15 (the sum of the decimals multiplied by 100). 75 Fed. Reg. at 37, 248. The OMB characterizes Combined Statistical Areas as “representing larger regions that reflect broader social and economic interactions, such as wholesaling, commodity distribution, and weekend recreation activities, and are likely to be of considerable interest to regional authorities and the private sector.” OMB Bulletin No. 15-01.
• A Single Political Jurisdiction is a city, county, or the political equivalent. 81 Fed. Reg. at 88, 440. While the other terms originated with the OMB, this one appears to be the NCUA's own.

         The Rule, promulgated in 2016, defines “local community, neighborhood, or rural district” in four ways challenged here. First, the Rule automatically characterizes as part of a local community any portion of any Core-Based Statistical Area (or of a Metropolitan Division instead when there is one) as long as the portion contains no more than 2.5 million people. 81 Fed. Reg. at 88, 440. The NCUA interpreted its previous iteration of the regulation as categorizing a portion of a Core-Based Statistical Area as belonging to a local community only if the core was itself included, but the 2016 Rule does not include that requirement. Id. at 88, 413-14. Now, a credit union can serve areas within a Core-Based Statistical Area that do not include the core.

         Second, the Rule automatically characterizes any individual portion of a Combined Statistical Area as belonging to a local community as long as the portion contains no more than 2.5 million people. Id. at 88, 440. An example of a Combined Statistical Area is the Washington-Baltimore-Arlington, DC-MD-VA-WV-PA Combined Statistical Area, which includes eight Core-Based Statistical Areas from the District of Columbia, Virginia, Maryland, West Virginia, and Pennsylvania.

         Third, the Rule allows a credit union serving a portion of a Single Political Jurisdiction, Core-Based Statistical Area, or Combined Statistical Area to add an adjacent area if the credit union can demonstrate that the adjacent area is part of the same local community based on various factors that indicate common interests or interaction. Id.

         Fourth, the Rule increases the population limit for rural districts to one million people. Id. A proposed service area within the population limit automatically qualifies as a part of a rural district if either (1) most of the area's population resides in Census Bureau-designated rural units or (2) the area's population density does not exceed 100 persons per square mile. Id. An area covering the state of Wyoming and portions of six surrounding states, for example, is considered a rural district under the Rule.

         The ABA challenges the Rule under the Administrative Procedure Act, arguing that the NCUA exceeded its statutory authority and that the Rule is arbitrary and capricious. See 5 U.S.C. § 706(2)(A), (C). Both parties moved for summary judgment, and the case was reassigned to the undersigned judge on December 4, 2017.

         A. Statutory History

         The Federal Credit Union Act (the Act) has its roots in the Great Depression. In the years following the stock market crash of 1929, many Americans lost access to credit at reasonable interest rates. First Nat'l Bank & Tr. Co. v. NCUA, 988 F.2d 1272, 1274 (D.C. Cir. 1993). Because they lacked the security required for bank loans, “working Americans turned to loan sharks who typically charged usurious interest rates, which was thought to reduce the overall purchasing power of American consumers.” Id. (citing 78 Cong. Rec. 12, 223 (1934)). Congress sought to solve this problem with the Act. See Pub. L. No. 73-467, 48 Stat. 1216 (1934) (codified at 12 U.S.C. § 1751 et seq.).

         Signed in 1934, the Act was designed to establish a stable federal system of cooperative credit, strengthen the country's securities market, and “make more available to people of small means credit for provident purposes.” Id. pmbl. To ensure that federal credit unions met their members' borrowing needs, the Act established the basic features of credit unions that persist today. The Act required credit unions to be owned and controlled by members and empowered credit unions to make loans only to members.[1] Id. §§ 103, 107, 109, 111. “Congress expected that such measures guaranteeing democratic self-government would infuse the credit union with a spirit of cooperative self-help and ensure that the credit union would remain responsive to its members' needs.” First Nat'l Bank, 988 F.2d at 1274.

         The Act also provided for two basic types of credit unions: common-bond credit unions (those whose membership shares an occupational or associational bond) and community credit unions (those whose membership shares geographic and communal ties). Pub. L. No. 73-467, § 109. The Act accordingly restricted the eligible fields of credit-union membership to “groups having a common bond of occupation, or association” or “groups within a well-defined neighborhood, community, or rural district.” Id. This requirement was “the cement that united credit union members in a cooperative venture.” First Nat'l Bank & Tr. Co. v. NCUA, 90 F.3d 525, 526, 529-30 (D.C. Cir. 1996), aff'd, 522 U.S. 479 (1998). “The Congress intended that each [federal credit union] be a cohesive association in which the members are known by the officers and by each other in order to ‘ensure both that those making lending decisions would know more about applicants and that borrowers would be more reluctant to default.'” Id. (quoting First Nat'l Bank, 988 F.2d at 1276).

         The NCUA and its predecessors initially interpreted the Act to require that every member of a common-bond credit union-the type not at issue here-share the same occupational bond. First Nat'l Bank, 522 U.S. at 484. But in 1982, the NCUA “reversed its longstanding policy in order to permit [common-bond] credit unions to be composed of multiple unrelated employer groups.” Id. (emphasis added). In 1998, however, the United States Supreme Court rejected the NCUA's new interpretation as “simply not what the statute provides” and “contrary to the unambiguously expressed intent of Congress.” First Nat'l Bank, 522 U.S. at 501, 503.

         Within months of the Supreme Court's decision, Congress amended the Act via the Credit Union Membership Access Act (the 1998 Act). See Pub. L. No. 105-219, 112 Stat. 913 (1998). In the preface to the 1998 Act, Congress reiterated its longstanding support for credit unions, finding that they “have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.” Id. § 2. Congress also found that “a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or the maintenance of an otherwise well-understood sense of cohesion or identity is essential to the fulfillment of the public mission of credit unions.” Id. Most relevant here, the 1998 Act modified the categories of service areas for community credit unions: whereas service areas were previously limited to a “well-defined neighborhood, community, or rural district, ” Pub. L. No. 73-467, § 109, the 1998 Act changed that phrase to “well-defined local community, neighborhood, or rural district, ” Pub. L. No. 105-219, § 101 (codified at 12 U.S.C. § 1759(b)(3)) (emphasis added). The 1998 Act required the NCUA to prescribe a definition of the phrase by regulation. Id. § 103 (codified at 12 U.S.C. § 1759(g)(1)).

         B. The NCUA's Interpretations

         Under this express delegation of definitional authority, the NCUA has promulgated multiple rules addressing the permissible service areas for community credit unions.

         1. The 1998 Rule

         Four months after the passage of the 1998 Act, the NCUA promulgated a rule defining the geographic scope of community credit unions. 63 Fed. Reg. 71, 998 (Dec. 30, 1998). The NCUA stated that its “policy is to limit the community to a single, geographically well-defined area where individuals have common interests or interact.” Id. at 72, 037. The rule thus “recognize[d] four types of affinity on which a community charter can be based-persons who live in, worship in, attend school in, or work in the community.” Id. Notably, the NCUA responded to Congress's decision to replace the term community with local community:

[T]he [NCUA] Board concluded that the addition of the word “local” to the previous statutory language was intended as a limiting factor and that additional clarification was required relative to what would qualify as a community charter. The Board further concluded that a more circumspect and restricted approach to chartering community credit unions appeared to be the congressional intent.

Id. at 72, 012.

         The rule established three requirements for community credit union applications: (1) the proposed area must have clearly defined geographic boundaries; (2) the applicant must demonstrate that the proposed area falls within a well-defined local community, neighborhood, or rural district; and (3) the residents of the area must have common interests or interact. Id. at 72, 037. The rule identified factors that the agency would consider in assessing the third requirement (which informed the second, id. at 72, 012), including (i) the presence or absence of a single major trade area, shared governmental or civil facilities, or area newspaper; and (ii) the population and geographic size of the proposed area. Id. at 72, 037. The NCUA noted that states and congressional districts did not meet the requirement that a service area be a local community, neighborhood, or rural district. Id.

         The rule also illustrated its requirements with examples of acceptable, unacceptable, and insufficiently defined fields of membership for community credit unions. Acceptable fields included people who live or work in the same county, the same school district, or the same university. Id. at 72, 038. Unacceptable fields included “persons who live or work in the Greater Boston Metropolitan Area” or “the State of California.” Id. at 72, 039. And insufficiently defined fields included “persons who live or work within and businesses located within a ten-mile radius of Washington, DC” or “persons who live or work in the industrial section of New York.” Id.

         2. The 2003 Rule

         In 2003, the NCUA promulgated a rule that broadened the local community requirement. 68 Fed. Reg. 18, 334 (Apr. 15, 2003). First, the rule established that any Single Political Jurisdiction (or any contiguous portion of one) automatically qualified as a local community. Id. at 18, 357. The NCUA clarified that this was an “irrebuttable presumption, regardless of population size, ” and that “no documentation demonstrating that the political jurisdiction is a community would be required.” Id. at 18, 337. Second, the rule provided that the statutory requirements might be met if “the area to be served is in multiple contiguous political jurisdictions” as long as the area's population does not exceed 500, 000. Id. at 18, 357. And third, the rule provided that the requirements might be met by an area with a population of up to one million people if the area is a Metropolitan Statistical Area or an equivalent area. Id. For any area not within a Single Political Jurisdiction, the rule required credit union applicants to submit a narrative letter describing how the proposed area meets the standards for community interaction or common interests. Id. at 18, 337, 18, 357.

         3. The 2010 Rule

         The NCUA further expanded the permissible service areas in a 2010 rule. While the NCUA acknowledged that “the statutory language ‘local community' does imply some limit” and reiterated that states and congressional districts do not qualify as local communities or rural districts, the agency abandoned its narrative-based approach. 75 Fed. Reg. 36, 257, 36, 258, 36, 264 (June 25, 2010). The NCUA stated that the local community requirement is met if the proposed service area is (1) a Single Political Jurisdiction or any contiguous portion thereof; or (2) a Core-Based Statistical Area or Metropolitan Division with a population not exceeding 2.5 million people, or portion thereof. Id. at 36, 264; see also Id. at 36, 257. In the rule's preamble, the NCUA noted that “any portion of a [Core-Based Statistical Area] chosen as the geographic area of the community must . . . contain the core.” Id. at 36, 260.

         The 2010 rule also defined rural district as an area with (1) well-defined, contiguous geographic boundaries; (2) either a population that mostly lives in areas designated as rural or a population density of no more than 100 persons per square mile; and (3) a population of no more than 200, 000. Id. at 36, 264.

         4. ...

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