On Jan. 24 the U.S. District Court of the Eastern District of Virginia dismissed a closely-watched lawsuit involving an attempt by the Independent Community Bankers of America to roll back a February rulemaking that allows federal credit unions to extend business loans to nonmembers. The court’s dismissal rested on two main points, one that was particular to this case, and one that will likely arise again in pending and future litigation involving banks and credit unions.
The ICBA sought a declaration that the NCUA violated federal law by adopting the aforementioned rule, and during the early stages of litigation the court focused on two vital requirements the lawsuit had to meet in order to proceed. The first one – and the one far more particular to this specific case – involved a statute of limitations built in to the Administrative Procedure Act which states that there is six-year period for challenging agency regulations. The second requirement involved issues of standing – did the ICBA have the legal right to bring the lawsuit?
In addressing the statute of limitations requirement, the court found that the ICBA’s challenge was focused on a portion of the regulation adopted in 2003 that excluded loan participation interests from calculation of the statutory caps on member business loans of the lesser of 1.75 times the actual net worth of the credit union or 12.25% of the credit union’s assets. Based on a close review of the 2016 rule changes, the court held that the ability to challenge revisions adopted in 2003 had not been reopened and therefore the latest a challenge could have been brought was Oct. 1, 2009.
The second requirement – the one involving standing – is far more pertinent to pending and future litigation between credit unions and banks. While grounded in the U.S. Constitution’s clause requiring a case or controversy, standing itself is not a fixed concept in the law. Indeed, at times the way federal courts construe standing can be maddeningly inconsistent.
It remains to be seen how the court’s reasoning on the standing issue may affect the American Bankers Association’s recent challenge to the NCUA’s field of membership rule, but no doubt the ABA will be more specific and thorough in demonstrating that the changes to the FOM rule have an adverse competitive effect on its members. As mentioned above, rulings on standing are very difficult to predict, but prudence would caution us against assuming that the ABA’s suit will get dismissed as the ICBA case did. The credit union industry would be best served by hoping for the right final outcome for the FOM rule, but also preparing for the possibility that the ABA case will be a longer fight.
It should be also noted that, theoretically, pursuant to the Congressional Review Act, the new Congress could rescind the MBL rule and the FOM rule. However, given that the CRA has only been invoked successfully on only one occasion to revoke any agency’s rule, it seems unlikely the NCUA’s rules will be high on the hit list given the many Obama Administration regulations Congress aims to eliminate. The focus of these efforts will likely be on regulations that congressional Republicans believe have a negative impact on business and the economy. In the case of the MBL rule, especially, the case can easily be made that by expanding business lending, it is a positive driver of the economy, not a drag on it.
Gina Carter is Chair, Credit Union Group, Husch Blackwell LLP. She can be reached at 608-234-6058 or gina.carter@huschblackwell.com.
