Oiciyapi Federal Credit Union v. National Credit Union AdministrationOiciyapi Federal Credit Union v. National Credit Union Administration
The Oiciyapi Federal Credit Union petitions for review of the National Credit Union Administration (NCUA) Board’s decision to suspend its charter and place it into involuntary liquidation. Oiciyapi argues that the charges on which the Board’s action was based are not supported by substantial evidence and that the action itself was arbitrary, capricious, and an abuse of discretion because the Board did not adopt the administrative law judge’s recommended decision, because the decision was based in part on unconstitutionally vague criteria, and because the sanction imposed is contrary to the goals and policy of the Federal Credit Union Act. We affirm.
I.
The Oiciyapi Federal Credit Union is located in Rosebud, South Dakota, on a Sioux Indian reservation. It is the only financial institution in the area: the nearest credit union is forty-two miles away, the nearest bank even farther. The reservation economy is depressed. Unemployment is over 80%, and few jobs pay more than minimum wage.
Oiciyapi received its charter in 1966. In 1985, its current troubles with government regulators began when it received a warning letter from the NCUA that its records were in arrears and out of balance, and that an acceptable audit or verification of members’ accounts had not been done since 1980. The letter warned that unless these problems were corrected by October 31, 1985, the NCUA might proceed with administrative remedies against the credit union.
Far from improving, the condition of the credit union worsened, and by fall 1986 it was insolvent. The NCUA examiner persuaded Oiciyapi’s board of directors to seek voluntary liquidation, but the Rosebud Sioux Tribe bailed out the credit union with a grant of $11,000, and the board of directors withdrew their request.
Over the next few years, the credit union remained solvent and even became profitable. A new manager took over and improved the recordkeeping procedures, but still the books were out of balance from time to time, and generalized problems of sloppy management remained, due largely to the inexperience and unsophistication of Oiciyapi’s board of directors.
In July 1989, the NCUA served Oiciyapi with a Notice of Intent to Suspend Charter and Place into Involuntary Liquidation. The notice charged that: (1) the credit union had failed to keep complete and accurate records, as required by the Federal Credit Union Bylaws and the Accounting Manual for Federal Credit Unions; (2) the 1988 election of the board of directors was invalid because of procedural irregularities; (3) the board of directors had failed to appoint a supervisory committee to help manage the credit union, as required by
The credit union requested a hearing, which was held on November 30, 1989, before an administrative law judge (AU). The witnesses were two NCUA examiners and the chairman of the credit union’s board of directors. After the hearing, affidavits from the manager of the credit union were introduced into evidence. The AU found that all the charges had been proved except the second one, concerning the allegedly invalid election. He recommended that the credit union’s charter be suspended for sixty days, or until the violations of the Federal Credit Union Act, regulations, and bylaws were remedied; that a public meeting of the credit union’s members be called to elect a new board of directors; and that the members and the tribe be notified that the credit union’s charter would be revoked unless the foregoing conditions were met. If the credit union did not achieve compliance with the Act, regulations, and bylaws by the end of the sixty-day period, the AU recommended that its charter be revoked.
Both sides filed exceptions to the AU’s decision with the NCUA Board. The Board adopted the AU’s factual findings, with one exception, 2 amplifying them in response to the parties’ objections. The Board declined, however, to adopt the AU’s proposed remedy. Concluding that the evidence showed “a pattern of mismanagement that threatens the safety and soundness of the credit union,” the Board decided to suspend Oiciyapi’s charter indefinitely and liquidate it, 3 the relief originally sought by the NCUA in its Notice of Intent. It appointed the Regional Director of the NCUA as liquidating agent and ordered that all assets, books, records, and other property of the credit union be turned over to him at once. Oiciyapi then petitioned this court for review.
II.
Federal credit unions are governed by the Federal Credit Union Act (FCUA),
The FCUA authorizes the NCUA to suspend, revoke, or liquidate a credit union that “has violated any of the provisions of its charter, its bylaws, this chapter, or any regulations issued thereunder.”
The FCUA provides that hearings are to be conducted according to the procedural requirements of chapter 5 of the Administrative Procedure Act (APA),
agency action, findings, and conclusions found to be—
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law ... [or]
(E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title....
Oiciyapi first challenges the Board’s decision under
The thorough opinions of the AU and the NCUA Board amply demonstrate that there is substantial evidence to support their findings. For example, the NCUA presented reports of NCUA examinations over a three-year period showing that-the books had been out of balance on numerous occasions. Hence, Oiciyapi’s first argument is meritless. Oiciyapi next argues that the Board abused its discretion in refusing to adopt the AU’s recommended decision. This argument likewise fails. The AU’s recommended decision is just that and has no binding force. It is considered a part of the record before the Board.
Oiciyapi next attacks the Board’s reliance on Oieiyapi’s asserted failure to promote thrift, to establish an effective loan collection program, and to control loan delinquency. It argues that these terms, which are not defined in the statute, regulations, or bylaws, are so vague and over-broad that to base suspension on them is arbitrary, capricious, and a denial of due process. Allowing the Board to take away its charter without supplying objective criteria by which its performance can be measured impermissibly subjects Oiciyapi to the standardless discretion of the NCUA, the credit union argues. Oiciyapi further maintains that since promoting thrift is central to a credit union’s mission, the NCUA abused its discretion in failing to promulgate regulations specifying what would constitute satisfactory promotion of thrift. We disagree. An agency may develop standards by adjudication as well as by rulemaking and has substantial discretion to choose which to use in a particular instance.
See NLRB v. Bell Aerospace Co.,
We also think that the standards the Board used in this case are constitutional and non-arbitrary. The AU and the Board determined, by looking at objective data like membership statistics, aggregate savings, and loan delinquency rates, and by comparing Oiciyapi’s performance in these areas with that of other similar credit unions, that Oiciyapi was not promoting thrift or collecting loans effectively. We reject Oiciyapi’s argument that it did not receive adequate notice of what criteria would be used; the NCUA examination reports contained statistics with peer comparisons, so Oiciyapi knew that its performance might be evaluated against that of other credit unions.
Finally, Oiciyapi contends that the sanction imposed on it is arbitrary and capricious because closing the credit union will frustrate rather than further the goals of the FCUA. Section 101 of the FCUA defines a credit union as “a cooperative association ... for the purpose of promoting thrift among its members and creating a source of credit for provident or produc
The NCUA argues in response that Oici-yapi is not serving any purpose relevant to the goals of the FCUA, and that the very things that keep Oiciyapi solvent and profitable demonstrate that it fulfills no useful function as a federal credit union. Oieiya-pi’s primary activity, according to testimony and documents in the record, is granting payday loans. These are loans that are taken out up to two weeks in advance of the borrower’s next paycheck. When payday comes, the borrower repays the loan and usually takes out another loan against his or her next paycheck. Since a $10 fee is charged for each payday loan application and over 150 people apply every two weeks, the credit union derives quite a substantial income from this activity. Payday loans are not “credit for provident or productive purposes,” as they are not used for investment. Another practice that has helped keep Oiciyapi profitable is not paying dividends to members on their savings. 4 The only dividend payment the record shows is a nominal one of 2% in June 1989. Not paying dividends obviously discourages saving, which is the primary goal of the FCUA. The disincentive effect of this practice is evidenced by an extremely low level of savings, only $12,500 total for all individual members in 1986. The NCUA also argues that the needs of the community should not be given controlling weight when the community is not using the credit union (in 1988, membership was only 1.4% of potential) and when it does not care enough to make sure the credit union is being run properly.
Finally, the NCUA contends that if a credit union is being run in an unsafe and unsound manner, as Oiciyapi was because of its poor recordkeeping and lack of a supervisory committee, among other problems, the NCUA need not wait for fraud or insolvency before closing the credit union down. Given its duty to protect the federal credit union insurance fund, the NCUA argues, it would be irresponsible to risk losses by taking no action.
While liquidation is not necessarily the remedy we would have chosen in the Board’s place,
5
we cannot say that the
[Wjhere Congress has entrusted an administrative agency with the responsibility of selecting the means of achieving the statutory policy the relation of remedy to policy is peculiarly a matter for administrative competence.... The fashioning of an appropriate and reasonable remedy is for the [agency], not the court. The court may decide only whether under the pertinent statute and relevant facts, the [agency] made an allowable judgment in [its] choice of the remedy.
Id.
at 185, 188-89,
III.
Because the NCUA Board’s decision was supported by substantial evidence and was not arbitrary, capricious, an abuse of discretion, or unconstitutional, we affirm.
Notes
.Under
. The Board agreed with Oiciyapi that because any violation of the maximum interest rate regulation was inadvertent and had been corrected, it was not evidence that Oiciyapi’s charter should be suspended.
. The last step in liquidation is canceling the credit union’s charter.
. Members save by purchasing shares in the credit union. Return on their investment is in the form of dividends, not interest.
. We are disappointed that the NCUA did not make more of an effort to keep Oiciyapi in operation, given the great need for a credit union on the reservation. The tribe was obviously willing to help, as evidenced by its $11,000 contribution when the credit union was insolvent, yet the NCUA examiner never met with tribal officials to address the chronic problems with the credit union. Periodically, NCUA examiners would ride into town and read the credit union the riot act, but they were apparently unwilling to spend time between examinations showing the obviously inexperienced board of directors and staff how to go about solving the problems.
We also note that the Board specifically rejected the option of placing Oiciyapi into conser-vatorship pursuant to
filed,