United States District Court, District of Columbia
L. FRIEDRICH UNITED STATES DISTRICT JUDGE.
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).
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.
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.
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,
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.
• 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.
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.
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.
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.
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.
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.
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.).
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. 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
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).
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.
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)).
The NCUA's Interpretations
this express delegation of definitional authority, the NCUA
has promulgated multiple rules addressing the permissible
service areas for community credit unions.
The 1998 Rule
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.
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.
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.
The 2003 Rule
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.
The 2010 Rule
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.
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.