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NCUA Posts Legal Opinion on Proposed RBC Rule
Wednesday, January 21, 2015 6:25 AM

Yesterday on its website, the National Credit Union Administration posted an opinion from the law firm Paul Hastings LLP about the agency’s revised proposed risk-based capital rule. The agency is posting the opinion after providing it to requesting parties under the Freedom of Information Act.

Key points in the opinion include:

  • The U.S. Supreme Court’s 1984 decision in Chevron, U.S.A. v. NRDC, Inc., requires courts to apply a two-pronged test when deciding whether an agency has the authority to issue a particular rule. First, a court must determine if Congress has explicitly given an agency that authority and, if so, whether the rule followed the “expressed intent of Congress.” Second, if the court finds Congress was silent or ambiguous on the agency’s authority, regulations “will be given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.”
  • Section 216 of the Federal Credit Union Act “is, at best, ambiguous with respect to the statutory authority of the NCUA to implement a two-tier RBNW [risk-based net worth] requirement for complex credit unions, as the language can be interpreted in multiple ways.” The section “does not prevent NCUA from imposing higher requirements on ‘well-capitalized’ credit unions to provide greater protection against risks” and does not show “congressional intent to preclude the NCUA from implementing different RBNW requirements for different capital categories.”
  • Based on facts described in the opinion and an analysis of case law and Section 216 of the Federal Credit Union Act, NCUA’s proposed rule “would withstand a court challenge alleging the agency’s approach is arbitrary, capricious, or manifestly contrary to the statutory language of Section 216” and that “under current principles of applicable law and existing case law, a court of appropriate jurisdiction, in a litigated matter or proceeding, could conclude that NCUA’s statutory authority permits the NCUA to establish the proposed two-tier RBNW requirement set forth in the Proposed Rule.”

Comments on the revised proposed rule must be received within 90 days of its publication in the Federal Register.