Why the FOM Ruling Really Matters to CUs

June 30, 2020 at 9:53 am 1 comment

The Supreme Court’s decision not to hear an appeal, upholding NCUA’s 2016 rule greatly expanding fields of membership for community credit unions, is not only important for the practical impact it has for credit unions looking to expand their fields of membership; it also has potentially greater significance for providing a judicial paradigm which could greatly enhance federal credit union activity for years to come. I am assuming that there will be no shortage of information about the field of membership possibilities, so humor me a little while I speculate about the potential significance of this decision. Simply put – the court’s logic gives rise to a more expansive reading of federal law as they pertain to credit unions and NCUA’s power to adjust these rules in the face of changing economic conditions.

Let’s face it, in recent years, the Federal Credit Union Act has become a huge roadblock strangling credit union growth. In 1934, when the US economy had a huge manufacturing base, fields of membership were as expansive as the employees working in factories. Manufacturing has all but disappeared, and shows no signs of returning. In 1998, Congress partially recognized this reality but limited credit unions to growing within well-defined local communities. Had the Court of Appeals not reversed the district court’s decision, invalidating much of NCUA’s regulation, most credit unions would have had little choice but to convert to state charters, at least in those states with charters that offered more growth opportunities. 

Just as there is a need for a strong and viable state charter, the federal charter needs to be equally competitive. If one charter atrophies it will, at least in the medium to long term, hasten the demise of the entire movement. 

A second big-picture reason why this decision potentially matters so much is that it directly addresses the argument that credit unions can’t be both large and true to the industry’s fundamentals. In reading up to the core of it’s ruling, the Court of Appeals for the D.C. Circuit throws this logic back at the industry’s critics. 

In upholding the regulation, the appellate court noted that “the definition allows for larger community credit unions; the decision is consistent with decades of history promoting the economic viability of credit unions in the face of banks and other competing financial institutions.” 

I don’t want to overstate my case. A decision by the Supreme Court not to grant an appeal has no precedential value, and this is just the opinion of one court. But for the first time in decades, credit unions can now start the hard work of using this language to defend future regulations and legal interpretations while also lobbying Congress and state legislatures to loosen antiquated and onerous field of membership restrictions. 

Entry filed under: Economy, Federal Legislation, Legal Watch. Tags: , , .

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1 Comment Add your own

  • 1. Thom Powers  |  June 30, 2020 at 11:06 am

    I have experience with that well defined Field of Membership from the Original Credit Union Act…I ran the Central Florida Educators FCU from 1994 to 1998…when Field of Membership was an issue. The Banks wanted us to return to our original Field. Interestingly in these times of Black Lives Matter…the original Field of Membership for Central Florida Educators was the White employees of the Orange County School System.


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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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