United States Court of Appeals, District of Columbia Circuit
April 16, 2019
Appeals from the United States District Court for the
District of Columbia No. 1:16-cv-02394
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
D. Gordon was on the brief for amici curiae State Bankers
Associations in support Appellee-Cross-Appellant American
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
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).
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.
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.
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.
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.
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
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.
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).
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.
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
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.
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).
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.
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.
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.
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
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,
phy/about/glossary.html. In layman's terms, a Core Based
Statistical Area is a city or town and its suburbs.
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).
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.
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.
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.
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 ...