Am. Bankers Ass'n v. Nat'l Credit Union Admin.

306 F.Supp.3d 44

AMERICAN BANKERS ASSOCIATION, Plaintiff,

v.NATIONAL CREDIT UNION ADMINISTRATION, Defendant.

Civil Action No. 16–2394 (DLF)

United States District Court, District of Columbia.

Signed March 29, 2018

Andrew Soukup, Philip J. Levitz, Robert Allen Long, Jr., Covington & Burling LLP, Washington, DC, for Plaintiff.

Andrew Marshall Bernie, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

DABNEY L. FRIEDRICH, United States District Judge

The 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).

Before 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.

I. BACKGROUND

Federal 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.

This 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.

• 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.

• 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.

• 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 , https://www.census.gov/geo/reference/gtc/gtc_cbsa.html. 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. 15–01.

• 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.

The 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.

Second, 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.

Third, 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.

Fourth, 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.

The ABA 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.

A. Statutory History

The 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. ).

Signed 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.¹ 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 1274.

The Act 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....