NCUA’s Membership Rule Change Challenged By Federal Judge

The National Credit Union Administration’s (NCUA) defense of revisions to a field-of-membership rule isn’t sitting well with a federal judge — and that just might enable an American Bankers Association (ABA) lawsuit to move forward.

According to American Banker, the ABA has challenged an NCUA rule that expanded credit unions’ field-of-membership rule for a variety of reasons.

But the two changes that Judge Dabney L. Friedrich focused on during a hearing on Wednesday were a provision allowing all or part of a combined area to qualify as a field of membership as long as the population doesn’t exceed 2.5 million, and a second increasing the population limit for rural districts to 1 million.

Friedrich specifically questioned how the rule would allow Salt Lake City to be considered part of a single district for a credit union’s rural field of membership.

“Salt Lake City is a huge city surrounded by rural districts. Why didn’t the agency carve it out?” Friedrich asked Andrew M. Bernie, the attorney representing the credit union regulator. “How Salt Lake City can be considered as part of a rural district under any construction defies logic.”

Friedrich also questions how five states — Wyoming, Alaska, North Dakota, South Dakota and Vermont — could qualify as well-defined rural districts under the regulation.

“Can you give me any examples in case law in which a local community is larger than a state?” she asked.

Bernie argued that the NCUA should be given some leeway since it was granted the right to decide what is an appropriate local or rural district in the Credit Union Membership Access Act of 1998. In addition, he said that the NCUA chooses areas that make the most economic sense.

“If you exclude population centers, you’re not going to have credit unions serving that district,” he said.

While Friedrich agreed that credit unions should “survive and grow,” she added that the agency wasn’t allowed “to rewrite the statute.”

Friedrich gave both sides until Friday to submit follow-up paperwork covering the issues discussed in the hearing.