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Vermont CU says its targeted in bank battle
MONTPELIER, Vt. (7/18/12)--Vermont State Employees CU (VSECU)  has filed an appeal with the Vermont Department of Financial Regulation (DFR)  after DFR issued a cease-and-desist order notice to prevent VSECU from using the word "banking" in its marketing, communications, and ads to describe its services.

VSECU, a $573 million asset credit union based in Montpelier, is the only credit union with statewide field of membership in Vermont and believes it is "being unfairly targeted in a battle with banks," it said in a press release Monday.  The DFR oversees both state-chartered banks and credit unions in Vermont.

The battle is over a disagreement about who can and cannot use the word "banking" to describe the services offered by a regulated financial institution. DFR believes the word is reserved for banks only and intends to forbid VSECU from using it, the release said.

DFR served a notice June 18 of intent to issue a cease-and-desist order that would prohibit VSECU from using the terms "[to] bank" and "banking" in its marketing, communications and advertising.

Over the past several months the credit union provided evidence to DFR that "clearly shows this action is misguided and will unfairly inhibit the growth of cooperative not-for-profit banking for Vermonters," the credit union said.  "DFR has not changed its position, and it is pressing forward apparently because of continuing complaints from bankers. VSECU intends to fight this notice and vigorously defend the right to freedom of speech and to advance credit union banking for all Vermonters."

"We're not sure where this issue will go from here," said VSECU CEO Steve Post. "We're prepared to follow this through to the end, regardless of how long it takes to ensure that we can continue to tell our story using a vocabulary that is simple, honest and commonly understood," he said in a written communication to VSECU members.

VSECU filed its appeal on Monday and is waiting for a hearing to be scheduled. Its petition for declaratory relief indicates that DFR's proposed order "is unsupported by law, illegal, unconstitutional on its face and as applied to VSECU, and would open VSECU to substantial future penalties and damages if it were to be entered as a final order."

The DFR in its proposed order cited Section 14103 of title 8 in the state law that says:

"No person shall advertise or put forth any sign as a bank, banking association or trust company, or in any way solicit or receive deposits or transact business as a bank, banking association, financial institution or trust company, or use the words 'bank,' 'banking association,' or 'trust company' or other similar sounding word or name unless it is a financial institution reporting to and under the supervision of the commissioner or is authorized to conduct such business in this state under federal law, or unless the commissioner approves the activity or word or name used in writing after giving due consideration for whether the activity, word or name will confuse or mislead the public as to the nature of the business of the entity."

The department's proposed order said the credit union is not one of the entities that may use these words  "or any other similar sounding word or name, including but not limited to 'banking,' 'banker,' 'banking co-op,' 'banking cooperative,' and 'not for profit banking cooperative,' to describe itself, its services, or its activities."  These words are "limited to financial institutions" and using them "is misleading and, at a minimum, significantly blurs the lines between a credit union and a bank and will confuse the public," the DFR order notice said.

Court documents filed by VSECU maintain it offers the same financial services as a bank does, is engaged in the "business of banking" or the "banking business," and is classified under Vermont and federal law as a "financial institution."  It noted the DFR had direct knowledge of its use of the word "banking" in its ads for a five-year period and did not take any regulatory action, and DFR as recently as June 13 "acknowledged that some of VSECU's use of banking and [to] bank  in its advertisements is permitted."

VSECU's  petition makes these points:

  • The state law does not prohibit a credit union from using the words "banking," "[to] bank," or "banking cooperative" to describe its activities or its form of entity.
  • State law is pre-empted by federal law, as determined by the National Credit Union Administration.
  • Applying the state law to prohibit VSECU from using "banking" and "banking co-op" would violate the Vermont Common Benefits Clause because VSECU competes directly with banks and federal credit unions in accepting deposits and lending money, which fall under the generic term, "banking."
  • The order would violate VSECU's First Amendment right of free speech, and it is vague and overly broad, violating the credit union's due process rights under the Fifth and 14th Amendments to the U.S. Constitution.
  • The department should refrain from arbitrarily asserting a new position with the use of the words to describe the activities of state chartered credit unions, the credit union argued.

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