AMERICAN BANKERS ASSOCIATION, AS EXPECTED, APPEALS THEIR FOM CHALLENGE TO THE US SUPREME COURT

It has now been confirmed what we expected.  The American Bankers Association (ABA), despite their decisive loss at the appeals court level, has potential  the US Supreme Court to hear their further appeal of the 2016 NCUA Field of Membership rules.

As we have believed their strategy has long been more one of delaying the implementation of the rule for so long that it needs to be updated again by the time it is effective, this is not a surprise.

Further, coupled with the recent scandal at the highest levels of the NCUA Office of General Counsel as made public in this past Friday afternoon’s release of the Office of Inspector General (OIG) report, it was even more certain that the ABA was going to take a shot at an appeal to the highest court in the land.

Although the legal position of NCUA is indeed strong as demonstrated by the unanimous decision of the US Circuit Court of Appeals three-judge panel and the likewise the subsequent decisive decision of the full US Circuit Court of Appeals acting in its entirety not to provide the ABA an en banc hearing comprised of the full court to challenge the three-judge panel’s ruling, the ABA is hoping that the publicity about the Office of General Counsel at NCUA might at least cause the Supreme Court to want to hear the case.

That is, in our view, pretty much a pipe dream for the ABA.  

The credibility of NCUA’s legal position is not adversely impacted at all by the actions of a couple of high-ranking attorneys in completely unrelated matters – indefensible though they may be.

Congress expressly gave to the National Credit Union Administration the authority to define field of membership rules for federal-chartered credit unions.  The courts have consistently upheld that congressional authority for NCUA, and other federal agencies as well, if their definitions are not inconsistent with the law or “arbitrary and capricious” in their interpretation of the law.  

It is a very uphill climb for the ABA to successfully argue that NCUA’s 2016 FOM rules are inconsistent with the law.  It is an even tougher standard to consider them arbitrary or capricious.

Just because the bankers do not like the NCUA’s rulemaking decisions does not mean they are inconsistent with the law

And the only group acting arbitrarily and capriciously is the ABA with its dilatory legal actions that, because the law and previous court decisions are so clear, only serve to delay federal credit unions the opportunity to pursue their strategic growth initiatives within a reasonable field of membership defined by third party governmental entities such as the US Office of Management and Budget (OMB) and the US Census Bureau.  

NCUA seems almost certain to win this case at the Supreme Court level.  

It is important to note that the Supreme Court receives between 7000 and 8000 requests for a “writ of certiorari” (the legal term for a granting of appeal to hear a case) each year.  In a normal year, the Court agrees to hear about 80 to 100 of those cases.  

The remainder of the appeals are not granted, and the decision of the last lower court to rule stands as the settled law on that matter.

Because the last lower court to rule was the US Circuit Court of Appeals and NCUA won that case so decisively, a decision not to grant certiorari would amount to a clear win for NCUA and federal credit unions.

In fact, it is important to know that it takes four US. Supreme Court Justices out of the nine (known as the “Rule of Form” in legal circles) to agree to grant a “writ of certiorari” on a case.  That normally happens when an issue has such legal or societal significance that the Court determines it worthy of review at the Supreme Court. 

It will be interesting to watch how the ABA states in its filing why allowing a federal community-chartered credit union to serve the entirety of a community that has already been designated as such by the OMB is of such legal and societal importance that it showed rise to the level of significance of cases they normally choose to review.

Again, they have a tough hill to climb.

But they have the money to do so.  And they know that NCUA will continue to postpone implementation of the 2016 rule for another extended time period while the Supreme Court decides whether the grant certiorari – and they know that, if they do, it will add another elongated time period for the Court to hear and issue a final ruling on the case.

Their strategy has worked.  Depending on how long the US Supreme Court takes to decide on the ABA’s petition for writ of certiorari, it could be late 2020 or early 2021 before the NCUA’s 2016 field of membership rules are implemented fully for federal credit unions.

That is five years of restricted fields of membership.  

That is five years that has resulted in a sizable number of conversions from the federal charter to the state charter in those states with more progressive and modernized field of membership rules.

Credit unions are getting expanded fields of membership.  It is just tough to do so at the federal level.

Without question, this inequity in FOM application has put the dual chartering system in jeopardy and will continue to shift the tide from the federal charter to the state charter if the 2016 rules are not upheld and implemented fully in as short order as possible.

This action by the ABA to appeal their case to the Supreme Court will delay the implementation of the 2016 federal rules even further.

But, again, that is its purpose.

Therefore, the decision to appeal is not a surprise.  

But it is frustrating for federal credit unions.

Hopefully, NCUA will work to more effectively implement the portions of their existing field of membership rules that were not challenged in the ABA’s lawsuit and those that have been upheld throughout the legal process on this ABA filing.

Unfortunately, to date, their nervousness over any imagined potential negative impact to their lawsuit defense has made them hesitant to fully implement the parts of their FOM rules that are not in question.

Underserved areas.  Associational SEGs. Service facility definitions.  Use of shared branching for service center qualifiers.  

All of these are allowed under the existing rules to be expanded beyond what NCUA is readily approving.

And none of them were even challenged in the ABA’s lawsuit.  

Federal credit unions, now having to wait until potentially the fifth year after its passage to get the benefit of the 2016 FOM update, should be able to move toward expanded FOM options allowed under current law and regulation without being forced to change charters to do so.

The ABA’s appeal will extend the wait for the “new” 2016 FOM rules for federal charters.  We encourage FCUs to continue to push for those FOM expansions available under the existing rules that have not been challenged and NCUA to get back into the FOM business for federal charters.

A competitive and viable federal charter depends upon it.  

Until next time.