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American Bankers Association v. National Credit Union Administration

United States Court of Appeals, District of Columbia Circuit

August 20, 2019

American Bankers Association, Appellee
National Credit Union Administration, Appellant

          Argued April 16, 2019

          Appeals from the United States District Court for the District of Columbia No. 1:16-cv-02394

          Daniel Aguilar, Attorney, U.S. Department of Justice, argued the cause for Appellant-Cross-Appellee. With him on the briefs was Mark B. Stern, Attorney.

          Allison Jones Rushing was on the brief for amici curiae Credit Union National Association, et al. in support of Appellant-Cross-Appellee. Nicholas G. Gamse entered an appearance.

          Steven D. Gordon was on the brief for amici curiae State Bankers Associations in support Appellee-Cross-Appellant American Bankers Association.

          Robert A. Long Jr. argued the cause for Appellee-Cross-Appellant. With him on the briefs were Andrew J. Soukup, Philip Levitz, and Lauren Moxley.

          Before: Henderson, Pillard, and Wilkins, Circuit Judges.


          Wilkins, Circuit Judge

         Longstanding principles of administrative law teach us to give federal agencies breathing room when they make policy and "resolv[e] the struggle between competing views of the public interest." Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 866 (1984). And because many policy decisions merge with legal ones, Chevron requires us frequently to sustain agency interpretations of certain federal statutes. Congress often expects agencies, with their political accountability, "bod[ies] of experience[, ] and informed judgment," to make sound interpretive choices "with the force of law." United States v. Mead Corp., 533 U.S. 218, 227, 229 (2001) (citation omitted).

         Congress expressly tasked the National Credit Union Administration (NCUA) with making such choices in defining the reach of federal credit unions. Since the Great Depression, Congress has maintained a "system of federal credit unions that . . . provide credit at reasonable rates" and banking services to "people of 'small means.'" First Nat'l Bank & Tr. Co. v. NCUA (First Nat'l Bank I), 988 F.2d 1272, 1274 (D.C. Cir. 1993) (citation omitted), aff'd, 522 U.S. 479 (1998). Although a private bank may solicit and welcome customers from anywhere, Congress has limited whom these federal financial institutions may serve. For instance, certain institutions called "community credit unions" may cover individuals and entities only within a preapproved geographical area. The credit union will not receive a federal charter (and thus cannot start operations) unless it first proffers a geographical coverage area and the NCUA accepts the proposal. Congress explicitly assigns the agency the task of creating vetting standards.

         Exercising its expressly delegated power, the NCUA has promulgated a final rule that makes it easier for community credit unions to expand their geographical coverage and thus to reach more potential members. Representing competitors to the credit unions, the American Bankers Association (Association) has challenged the NCUA's new rule as neither "in accordance with law" nor within "statutory jurisdiction." 5 U.S.C. § 706(2)(A), (C). The District Court vacated significant portions of the rule, deeming them to be based on unreasonable agency interpretations of the Federal Credit Union Act (Act), Pub. L. No. 73-467, 48 Stat. 1216 (1934) (codified as amended at 12 U.S.C. §§ 1751 to 1795k). See Am. Bankers Ass'n v. NCUA, 306 F.Supp.3d 44, 61, 69-70 (D.D.C. 2018).

         We appreciate the District Court's conclusions, made after a thoughtful analysis of the Act. But we ultimately disagree with many of them. In this facial challenge, we review the rule not as armchair bankers or geographers, but rather as lay judges cognizant that Congress expressly delegated certain policy choices to the NCUA. After considering the Act's text, purpose, and legislative history, we hold the agency's policy choices "entirely appropriate" for the most part. Chevron, 467 U.S. at 865. We therefore sustain the bulk of the rule. Still, we do not rubber-stamp this regulation. We remand, without vacating, one portion for further consideration of the discriminatory impact it might have on poor and minority urban residents.



         The nation's credit unions started in the early twentieth century "as a populist mechanism designed to empower farmers against bad loans." Mehrsa Baradaran, How the Poor Got Cut Out of Banking, 62 Emory L.J. 483, 500 (2013). Walloped by crop failures and the Great Depression, farmers seeking credit became not only increasingly suspicious of traditional bankers, who "disregard[ed]" poor individuals and stayed in the big cities, but also fearful of loan sharks, "who would extract 'up to a thousand percent' in interest rates." Id. at 500-01 (quoting 80 Cong. Rec. 6752 (1936) (statement of Rep. Lundeen)). The farmers thus began to build their own credit networks.

         In a national grassroots campaign, farmers created localized, non-profit "credit groups" collecting funds from and loaning small sums to one another at low interest rates. See id. at 501-02. The success of any such self-help institution "hinge[s] on the interpersonal dynamics of its members: Lenders must be able to evaluate the ability and willingness of potential borrowers to pay back their loans and borrowers must feel obligated to pay back those loans." Wendy Cassity, Note, The Case for a Credit Union Community Reinvestment Act, 100 Colum. L. Rev. 331, 337 (2000); see also First Nat'l Bank & Tr. Co. v. NCUA (First Nat'l Bank II), 90 F.3d 525, 526 (D.C. Cir. 1996), aff'd, 522 U.S. 479 (1998).

         By 1934, individuals had organized about 3, 000 local credit unions, with about 750, 000 members. See 80 Cong. Rec. at 6753. Recognizing the success of credit unions at the state level, Congress created a federal system that year by passing the Act. Legislators worried that "usurious money lending . . . obviously destroy[ed] vast totals of buying power [once held by] . . . the average worker." H.R. Rep. No. 73-2021, at 1-2 (1934); see also S. Rep. No. 73-555, at 1 (1934). Congress touted the Act's ability to "make more available to people of small means credit for provident purposes." H.R. Rep. No. 73-2021, at 1; see also S. Rep. No. 73-555, at 1.

         Credit unions multiplied over the ensuing decades. By 1970, Congress created an independent agency to supervise federal credit unions: the NCUA. See Pub. L. No. 91-468, 84 Stat. 994 (1970) (codified as amended in scattered sections of 12 U.S.C.); see also Swan v. Clinton, 100 F.3d 973, 974 (D.C. Cir. 1996) (noting that Congress "entrusted" the agency with "the responsibility of overseeing" federal credit unions). Legislators thought that the agency would be "more responsive to the needs of credit unions" and would "provide more flexible and innovative regulation" than prior government agencies, which did not have federal credit unions as their sole focus. S. Rep. No. 91-518, at 3 (1969).

         The NCUA faced its first major crisis at the end of the 1970s. After years of economic decline in several industrial sectors, federal credit unions tied to those business sectors began to suffer. The resulting liquidation of numerous credit unions "threaten[ed] 'the safety and soundness of the federal credit union system.'" Cassity, supra, at 338-39 (footnote omitted). Reacting to the emergency, the NCUA in 1981 promulgated a groundbreaking rule that loosened a major size limitation on certain federal credit unions. Almost immediately, those financial institutions grew in membership.

         Meanwhile, credit unions became "caught up in the broader changes in banking and faced internal as well as external pressure to compete with [private] banks and seek higher profits." Baradaran, supra, at 505. Unlike credit unions, private, for-profit banks were "owned by equity holders who may not necessarily be customers (depositors or borrowers)," and they did "not have similar membership and commercial lending restrictions" as credit unions. Darryl E. Getter, Cong. Research Serv., IF11048, Introduction to Bank Regulation: Credit Unions and Community Banks: A Comparison 1 (2018). To remain viable, credit unions "started to focus on attracting more customers and expanding the industry." Baradaran, supra, at 505. As part of that strategy, many consolidated through mergers. And private banks soon treated credit unions as serious competitors, seeking to curb their growth. See NCUA v. First Nat'l Bank & Tr. Co. (First Nat'l Bank III), 522 U.S. 479, 485 (1998); First Nat'l Bank I, 988 F.2d at 1276.

         In 1998, the banking industry successfully challenged as contrary to the Act the 1981 rule that had eased size limitations for certain federal credit unions. See First Nat'l Bank III, 522 U.S. at 503. Congress swiftly responded. In less than six months, legislators amended the Act, superseding the holding in First National Bank III, loosening size limitations on certain federal credit unions, and adding other reforms. See Credit Union Membership Access Act, Pub. L. No. 105-219, 112 Stat. 913 (1998) (codified as amended in scattered sections of 12 U.S.C.). Partly because of the 1998 amendments and related NCUA regulations, credit unions continued to merge and grow in membership. Now, more than 61 million customers perform their banking services at about 3, 400 federal credit unions. See 2018 Nat'l Credit Union Admin. Ann. Rep. 192.


         Federal credit unions pool funds from - and give loans to - their members and other credit-union entities. 12 U.S.C. § 1757(5), (6). A credit union's members, whether individual or corporate, must come from the credit union's membership "field," id. § 1753(5), which is based on a shared occupation, association, or geographical area. Members receive regular dividends. Id. § 1763. Congress has shielded federal credit unions from federal corporate income taxes and most state and local taxes, but members must pay taxes on their dividends. See James M. Bickley, Cong. Research Serv., 97-548 E, Should Credit Unions Be Taxed? 3-5 (2005).

         To create a federal credit union, at least seven individuals must present a proposed charter and pay a fee to the NCUA. See Michael P. Malloy, Banking Law & Regulation § 2.04 (2d ed. 2019). In the application, the organizers must pledge to deposit funds for shares in the institution and must describe the credit union's proposed membership field. 12 U.S.C. § 1753(3), (5). The NCUA must approve the charter before the institution may start. See id. § 1754. The agency will complete an "appropriate investigation" and determine the "general character and fitness" of the organizers, the "economic advisability of establishing" the credit union, and the "conform[ity]" of proposal details with the Act. Id.

         The Act governs two types of federal credit unions: "common-bond" credit unions and "community" credit unions. See id. § 1759(b). This case deals with the latter category. The 1934 version of the Act required a community credit union's membership field to reflect a particular geographical area - to wit, "a well-defined neighborhood, community, or rural district." § 9, 48 Stat. at 1219. As amended in 1998, the Act provides that membership for a community credit union "shall be limited to . . . [p]ersons or organizations within a well-defined local community, neighborhood, or rural district." 12 U.S.C. § 1759(b) (emphasis added). The 1998 version calls on the NCUA to "prescribe, by regulation, a definition for the term 'well-defined local community, neighborhood, or rural district.'" Id. § 1759(g)(1). Thus, under the new regime, individuals seeking to organize a new community credit union (or alter an existing one) must commit to serving members within the NCUA's contemporaneous definition of "local community, neighborhood, or rural district." See S. Rep. No. 105-193, at 4, 8 (1998); H.R. Rep. No. 105-472, at 21 (1998). As part of their application to the NCUA, they must provide a proposed description of the precise geographical area that the credit union would serve.

         Since 1998, there has been "dramatic growth" in the number of community credit unions. U.S. Gov't Accountability Off., GAO-07-29, Credit Unions: Greater Transparency Needed on Who Credit Unions Serve and on Senior Executive Compensation Arrangements 4 (2006). Despite a 11-percent drop in the number of federal credit unions from 2000 to 2005, community credit unions doubled to 1, 115. Id. at 4, 12. Meanwhile, the amount of assets in community credit unions quadrupled to $104 billion. Id. at 4.


         On December 7, 2016, the NCUA amended its membership-field rules for community credit unions. See Chartering and Field of Membership Manual, 81 Fed. Reg. 88, 412 (Dec. 7, 2016). Several changes rely on two terms devised by the Office of Management and Budget (OMB) and based on data collected by the Census Bureau (Census): "Core Based Statistical Areas" and "Combined Statistical Areas."

         The OMB has designated numerous regions around the country as Core Based Statistical Areas, which comprise at least one urban cluster, or core, of 10, 000 or more people and adjacent counties with substantial commuting ties to that core. See U.S. Census Bureau, Geographical Program, Glossary, phy/about/glossary.html. In layman's terms, a Core Based Statistical Area is a city or town and its suburbs.

         Meanwhile, a Combined Statistical Area is a conglomerate of two or more adjoining Core Based Statistical Areas, each of which has substantial commuting ties with at least one other Core Based Statistical Area in the group. Id. Essentially, a Combined Statistical Area is a regional hub with urban centers connected by commuting patterns. Combined Statistical Areas may "reflect broader social and economic interactions, such as wholesaling, commodity distribution, and weekend recreation activities." Office of Mgmt. & Budget, Exec. Office of the President, OMB Bull. No. 15-01, Revised Delineations of Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and Guidance on Uses of the Delineations of These Areas app. 2-3 (2015).

         Relevant here, the 2016 rule made two changes to the NCUA's definition of the term "local community" under § 1759(b)(3) and one to that of "rural district." The changes affect what proposed membership areas satisfy the geographical limitation imposed by the Act.

         The first change to the "local community" definition involves Combined Statistical Areas. A proposed area qualifies as a local community if it encompasses the whole or a portion of a Combined Statistical Area and does not exceed a designated population limit. See 81 Fed. Reg. at 88, 440. The NCUA has set that cap at 2.5 million people.

         The second change involves Core Based Statistical Areas. The parties agree that all or part of a Core Based Statistical Area may qualify as a local community so long as it does not exceed the population limit. But since 2010, the NCUA required such a membership area to include the urban core. The new rule no longer requires that the core be included in the local community that a credit union proposes to serve. See id. at 88, 413, 88, 440.

         As for the "rural district" definition, the new rule increases the population cap for valid rural districts from 250, 000 people (or 3 percent of the population of the state where most eligible residents are located) to 1 million people. See id. at 88, 416, 88, 440. The new population limit works with two other constraints set by the rule: (1) an outer geographical limit on how far a rural district may extend past the borders of the credit union's headquarters state; and (2) a requirement either that most eligible residents reside in ...

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