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March 5, 1996

JOHN FLOOD, et al., Plaintiff,
NICHOLAS VEGHTS, et al., Defendant.

The opinion of the court was delivered by: ALESIA

 Plaintiffs, the subscribers and sponsor of a proposed credit union, applied for federal share insurance from the National Credit Union Administration ("NCUA"). The application before the NCUA was first considered and rejected by the NCUA's Regional Director, Nicholas Veghts. Plaintiffs then sought reconsideration. The Regional Director did reconsider and again denied the application. Thereupon, the plaintiffs appealed to the NCUA Board. This time the Board issued a final denial. Plaintiffs now seek judicial review of the agency's action.

 In an earlier opinion, this court held that the NCUA Board's action is subject to judicial review under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701 et seq. See Flood v. Veghts, 878 F. Supp. 1083 (N.D. Ill. 1995). Defendants have now filed a motion for summary judgment. Plaintiffs have also moved for summary judgment, as well as filed a motion in opposition to defendants' motion for summary judgment. For the reasons set forth below, defendants' motion is granted and both of plaintiffs' motions are denied.

  Section 706 of the APA provides that a reviewing court shall "hold unlawful and set aside agency actions, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). The scope of review under this standard is narrow and a court is not to substitute its judgment for that of the agency. Motor Vehicle Mfrs. Ass'n. v. State Farm Mutual, 463 U.S. 29, 42, 103 S. Ct. 2856, 2866, 77 L. Ed. 2d 443 (1983). "Nevertheless, the agency must examine the relevant data and articulate a 'rational connection between the facts found and the choice made.'" Id. (citing Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S. Ct. 239, 245-46, 9 L. Ed. 2d 207 (1962)). In reviewing that explanation, this court's task is to determine whether the agency's decision "was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Id. at 43, 103 S. Ct. at 2866-67 (citations omitted). The "arbitrary or capricious" standard is a deferential one which presumes that agency actions are valid as long as the decision is supported by a "rational basis." Pozzie v. U.S. Dept. of Housing and Urban Development, 48 F.3d 1026, 1029 (7th Cir. 1995). Despite the fact that the agency's decision is entitled to a presumption of validity, this court must nevertheless engage in a "substantial inquiry," or in other words, "a thorough, probing, in depth review." Id. (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 91 S. Ct. 814, 823, 28 L. Ed. 2d 136 (1971)).

 Plaintiffs' argument for reversal of the NCUA Board's denial of federal share insurance is clear and simple. They argue that the Board's reasoning is not only "non-existent" but also based on "pure speculation." The court disagrees.

 The Federal Credit Union Act ("Act") provides that the NCUA Board may insure the member accounts of credit unions organized and operated according to the laws of any State. 12 U.S.C. § 1781(a). As was done in this case, the credit union seeking federal share insurance must submit an application. Id. at 1781(b). Before approving any such application, the Act states that the Board shall consider:

"(A) the history, financial condition, and management policies of the applicant;
(B) the economic advisability of insuring the applicant without undue risk of the fund;
(C) the general character and fitness of the applicant's management;
(D) the convenience and needs of the members to be served by the applicant; and
(E) whether the application is a cooperative association organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes."

 Id. at 1781(c)(1). The Act further states that "the Board shall disapprove the application of any credit union for insurance of its member accounts if it finds that its reserves are inadequate, that its financial condition and policies are unsafe or unsound, that its management is unfit, that insurance of its member accounts would otherwise involve undue risk to the fund, or that its powers and purposes are inconsistent with the promotion of thrift among its members and the creation of a source of credit for provident or productive purposes. Id. at 1781(c)(2).

 In this case, the Board, pursuant to § 1781(c)(2), denied the plaintiffs' application for federal share insurance because the credit union's probable future financial condition and policies were unsafe and unsound and because insurance of its member accounts would involve undue risk to the NCUA's insurance fund. The Board made its decision based on four separate pieces of evidence. The court considers each of these in turn.

 First, the Board noted that a severe overlap problem has not been adequately addressed by the plaintiffs. The overlap problem exists because members of the Combined Counties Police Association (the proposed credit union's sponsor and a plaintiff in this case) are already eligible for credit union membership in the Heritage Federal Credit Union. This, the Board found, would have an adverse impact on the proposed credit union's ability to attract and maintain depositors and borrowers and calls into serious question its economic viability. Consequently, the Board suggested that the plaintiffs address the overlap problem in any future application, e.g., by taking a survey of those people within the overlap group to see if they would join the proposed credit union or maintain their accounts with Heritage Federal. Despite the plaintiffs' argument to the contrary, the court finds this to be a legitimate concern by the Board. Clearly, it is not economically advisable for the NCUA to give federal share insurance to a proposed credit union that does not have a likely potential membership. It is quite possible ...

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