VSECU appeals state decision to prohibit use of the word “banking” in the credit union’s advertisements

Vermont State Employees Credit Union CEO Steve Post in his office in Montpelier. VTD Photo/Taylor Dobbs

Vermont State Employees Credit Union CEO Steve Post in his office in Montpelier. VTD Photo/Taylor Dobbs

VSECU is appealing a decision from the Department of Financial Regulation that would prohibit the credit union from using the word “banking” in advertisements.

Last month Steve Kimbell, commissioner of the department, issued a “notice of intent” to issue a cease and desist order to VSECU, giving the credit union 30 days to stop using the “banking” in advertisements to describe its activities.

On Monday, VSECU appealed the decision. The pre-hearing for VSECU is tentatively scheduled for 9 a.m. Aug. 22 in Montpelier. The 30 day cease and desist order is now in abeyance until the department issues a decision after the hearing.

Under state statute, credit unions may not transact business as a bank and may not advertise their services as banking.

At issue is whether consumers are confused when a credit union, which may have many of the same financial services as a bank, uses the word “banking.”

Steven Post, CEO and president of VSECU, says the word “banking” best describes the services the nonprofit cooperative offers. It’s hard, he says, to replace “banking” with “credit unioning.”

Post says he was “stunned” by the department’s action, and he says Kimbell didn’t rule in a “rational way.”

“The basic issue as we see it is we are using truthful, accurate words to describe what we do and who we are,” Post says. “The word ‘banking’ is ubiquitous, truthful, nonconfusing and commonly understood by consumers.”

The department first reprimanded VSECU in 2007 for a series of ads. After that, Post says, the credit union frequently sent ads to the department for review. The issue laid dormant until last fall when VSECU began to use the descriptor “banking cooperative” in its advertising.

Kimbell says this term is confusing for consumers and could lead members of the public to believe a credit union is in fact a bank. Under the law, credit unions can’t call themselves banks, and banks can’t call themselves credit unions, Kimbell says.

“The theory underlying the legislation on the books is consumer protection,” Kimbell says. “Consumers need to know what kind of financial institution they’re dealing with, and I suspect we’ll look into how valid that need is any more.”

Post says he is keen to maintain the distinction between the two entities, but the phrase “banking cooperative” helps to define what a credit union is.

Though banks and credit unions deliver the same products and services, Post says, there are major structural differences between the two entities.

VSECU is a nonprofit cooperative owned by its members; commercial banks are for-profit entities. Many of the state’s 26 approved credit unions are small, local entities. VSECU is the only statewide credit union. It has 50,000 members, total assets of $600 million and a reserve pool of $48 million, or roughly 8 percent of assets. The credit union pays sales, property and payroll taxes, but because it is a nonprofit, VSECU does not have to pay the deposit franchise tax assessed on Vermont banks.

The National Credit Union Administration has already ruled that federally chartered credit unions can use the word “banking.”

Post says the Department of Financial Regulation is taking a unique and narrow position on the issue; Kimbell says 25 states have similar rules.

For Kimbell, the advertising issue raises larger questions about the differences between credit unions and banks.

“The crux of the matter is, is that distinction necessary more?” he asks. “Then it begs the question, why don’t we tax you just like the banks? I don’t know what the answer is.”

If the department rules against the credit union, Post says he’ll seek relief in the courts.

“We’re willing to defend our position,” Post says. “We think their interpretation of the statute is misguided. We should not be prohibited from describing our products as they are.”

Kimbell says he has to interpret state statute the way it is written. “We execute and enforce the laws the Legislature writes,” Kimbell says. “I don’t think I’ve got the power to say to any bank or credit union, ‘call yourself anything you want.’ The remedy is with the Legislature.”

Kimbell says an impartial hearing officer will make a recommendation. Ultimately, the commissioner will decide.

VSECU is represented by Kimbell’s old firm, KSE Partners, and Storrow, Buckley, Hughes. The commissioner said he has never represented VSECU himself and the association with his former company would have no bearing on his decision. He pointed to his decision last fall to nix the Fletcher Allen Health Care proposal to spin off dialysis units to Fresenius, a German conglomerate, as an example of his impartiality. Fletcher Allen is a client of KSE Partners.

“That doesn’t stop me from doing my job,” Kimbell says.

He says it’s important to bring the case before a hearing officer because of the controversial nature of the issue.

Chris D’Elia, executive director of the Vermont Bankers Association, could not be reached for comment.


Follow Anne on Twitter @GallowayVTD

Comments

  1. Paul Hannan :

    Hmmm…Sounds like we may need to find a new word for where river meets land lest we all run afoul of DFR. How ’bout we call it the “river eat-more-kale.” Oh, I guess that’s got problems too. Well, we’ll think of something.

  2. Sheryl Rapee-Adams :

    We use VSECU for checking, savings, mortgage, credit card. It quacks like a bank to me.

  3. Pam Ladds :

    Well I guess we can see who is a member of the Banksters! How thoughtful of DFR to have the interests of us poor little “consumers” at heart. Now where was their care and consideration when we were (and still are) being ripped off the Too Big to Fail Banks? While it is obvious that changing the word “banking” to something else is unnecessary it might actually be worth doing. Anything to encourage all of us to leave the Wall Street Mob and switch to investing locally.

  4. Avram Patt :

    (Disclaimer: I am the manager of a different type of cooperative and knowledgeable about the cooperative business model generally. This comment is my own personal opinion.)

    We have had two VSECU memberships in our household since 1987, and a variety of “banking” accounts there: checking, deposits, loans, credit cards…

    I am surprised that the Department of Financial Regulation has chosen to pick this fight and don’t understand how it serves the public. I have actually read the DFR documents attached to this story. Ultimately, the meaning of words will be argued by lawyers and maybe in the Legislature, but my own plain English and (I think) common sense reading of the statutory language cited by DFR says that they are really, really stretching it to come up with this order aimed at VSECU. While VSECU has clearly used the term “banking” (a verb), and “bank” (as an adjective) in their promotions, as far as I can tell, they have not called themselves a “bank” (noun, as defined in statute.) I’m not being picky. They are describing what they do, what services people can get, in plain English that Vermonters can understand. In the DFR’s citations, I do not see where VSECU says they are a bank. They say they are a credit union, or a cooperative.

    A co-op has the right to tell its members and the public what they do, whether they sell food and groceries, insurance, electricity, fuels, downhill skiing, or consumer banking services (all examples of Vermont cooperatives).

    Throughout the country and in Vermont, there are businesses that do “investment banking.” These businesses engage in a variety of activities to raise capital for corporations, package mergers and acquisitions, and many other activities that do not in any way resemble consumer “banking” as most Vermonters understand it (checking account, certificate of deposit, IRA, car loan, mortgage, VISA, etc.) Whether the statute says they can call themselves banks, or not (I haven’t looked that up), common sense says investment “banks” do not offer banking services and products that ordinary people recognize as such, and that VSECU and other credit unions do.

    The fact that Steve Kimbell has chosen to throw the taxation issue into this as well raises an eyebrow. If it comes to that, I’m sure VSECU is prepared to explain again that while they do pay lots of taxes, certain tax distinctions between credit unions and for-profit banks are wholly justified based on the differences in ownership structure and purpose. This is a line he seems to have taken straight from the for-profit banking lobby.

    The public is not being well served here in my opinion.

  5. Renée Carpenter :

    I’m a consumer and I’m not at all confused: Our credit unions are cooperative banks. If the laws don’t allow for clear and simple language, it is time to change those laws.

  6. Page Guertin :

    Here’s the statute: “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. However, this section shall not prevent an individual, as such, from acting in a trust capacity.”

    VSECU is clearly “a financial institution reporting to … the commissioner.” It clearly provides the services we have come to know as “banking”: checking, savings accounts, loans, credit cards. So what’s the issue here? It feels like there’s something else going on, perhaps pressure from the big banks to weaken credit unions. Certainly DFR has more important things to focus on.

    Those of us who utilize VSECU for our banking services (yes, banking) are not confused by the differences between a credit union and the woeful institutions that banks have become – that’s exactly why we utilize the credit union. We can get banking services from a traditional for-profit bank, a member-owned cooperative, Walmart or an internet service. So why is Kimbell targeting VSECU??

  7. Jason Farrell :

    While the article states that “Under state statute, credit unions may not transact business as a bank and may not advertise their services as banking.”, Vermont State Statute does appear to include credit unions in their definition of “bank”. From the statute:

    “Bank” means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union, or trust compan;.

    http://www.leg.state.vt.us/statutes/fullsection.cfm?Title=09A&Chapter=004&Section=00105

    Are there conflicting statutes? I’ve not yet been able to find the Vermont statute that prohibits credit unions from transacting business as a “bank”.

  8. Grace Adams :

    I HAVE BEEN A MEMBER OF VSECU SINE 1981, I NEVER GO TO A
    “BANK”, BECAUSE THEY COST TOO MUCH.
    I THINK YOU ARE BEING PRESSURED BY THE “BIG BANKS”, BECAUSE
    THEY ARE LOSING MONEY. THEIR PERSONNEL ARE NOT PLESANT,
    AND ALWAYS LOOKING FOR THEIR BOTTOM LINE.

    STAY COOL AND LOOK FOR REAL ISSUES.

  9. JOHN BRABANT :

    Wow, all this time I thought I was doing my “banking” at VSECU with a for profit bank. Thanks Steve for the heads up and for clearing the air. I mean, the very name “Vermont State Employees Credit Union” clearly isn’t enough avoid the very likely conclusion with this misappropriation of the terms “bank” or “banking” that I had been BANKING and that BANKING was being done with the likes of a Goldman-Sachs style entity. All this time I have been managing my family’s finances with an entity that clearly has no influence with the likes of the Obama or Bush administrations, an entity that can only simply assist my in making my financial ends meet every month. Boy, I will now need to re-think whether or not to continue to bank at VSECU.

    On a more serious note, Steve Kimbell for some reason is not using the latitude that he apparently has been provided in the broad statutory language governing the use of the terms “bank” or “banking”. I do agree with Steve that maybe it is time that the legislature establish more clear policy in this regard as the administration clearly is uncomfortable with having this much latitude and are afraid to use it. You gotta wonder why. I mean, really, how does this decision benefit Vermonters? A total waste of time, tax dollars, VSECU member dollars and a major cluster _ _ ok.

  10. Donald Kreis :

    I heartily concur with the comments of my friend Avram Patt. The Department of Financial Regulation has adopted a strained interpretation of the relevant statutes that would not survive scrutiny by the Vermont Supreme Court. I hope the VSECU pursues this matter before that tribunal if it comes to that. Statutes must be interpreted according to their plain meaning. Even if the use of the word “bank” in section 14103 were ambiguous, statutory ambiguities are resolved in a manner that advances their fundamental purpose. Here, that purpose is clearly to protect the public from fraudulent activity — not to prevent credit unions from describing their lawful business activities in plain English. Good grief.

    A couple of additional points: First, although I don’t know Commissioner Kimbell, I would urge his critics to stay their hands temporarily. He has not yet ruled on whether he agrees with the views of the overzealous and mistaken assistant general counsel who drafted the proposed cease-and-desist order. Indeed, this might be an occasion for concerned members of the public to communicate their views to the Commissioner by letter and otherwise.

    Second, consistent with the foregoing, what we have here is yet another example of why Vermont’s vibrant cooperative sector must ramp up its visibility. If co-ops were as visible as they ought to be — and if co-ops did as good a job as they ought to do in demonstrating, loudly and constantly, how a cooperative economy differs from an economy organized around maximizing investor wealth — it would be inconceivable that the Department of Financial Regulation would consider such an improvident course of action. And, frankly, there’s a bit of blame to be assigned here to the credit union sector in particular — while it’s laudible that the VSECU has used the term “cooperative banking” to describe what it does, I wish Vermont’s credit unions did a better job of looking and sounding like co-ops rather than banks. It’s paradoxical, this context — if credit unions acted less like banks, they wouldn’t be fighting with the state for permission to use the word “bank.”

    Here we have an opportunity for some cross-sectoral solidarity. What if every food co-op in Vermont were to take out an advertisement in tomorrow’s daily newspapers pointing out that the thousands and thousands of Vermonters who belong to co-ops know the difference between a bank and banking — and know the difference between the financial institutions that brought our nation to the brink of oblivion in 2008 and the financial institutions that have thrived as community-owned democratically controlled enterprises?

    One can only hope that Vermont’s Cooperator in Chief — by which I mean the lifelong member of the Putney Food Co-op who is our Governor — is ringing up his Commissioner of Financial Regulation this very minute to tell him that the Shumlin Administration’s priorities do not include the persecution of cooperatives, including credit unions. To the contrary, the Governor (and the Legislature) are strong supporters of cooperatives as key to Vermont’s economy. We have only to remind them of that.

    My criticism of credit unions above notwithstanding, the Vermont Association of Credit Unions has been as committed as any organization in Vermont in promoting cross-sectoral solidarity. It has co-sponsored not one but two Vermont Cooperative Summits. So all cooperatives in Vermont should pitch in here and come to the aid of the VSECU. It’s a win-win because the fight itself is an opportunity to make the Cooperative Difference clear, even in the unlikely event that the VSECU does not win its case.

  11. Ronald Pulcer :

    I am a recent VSECU member (for almost a year now). I also belong to two other credit unions, one in Vermont and one in another state. I have been a member of a credit union for over 25 years.

    Why did I initially join a credit union? I was originally a customer of two banks. I had a very frustrating experience with each bank. In both cases, they essentially “misplaced” or “lost” a large chunk of my money, at a time when I really needed the bank to come through (wire money for down payment on first home purchase, and cashing my once-a-month paycheck). I won’t go into the gory details, but these mistakes (blamed on the computers of course), went on for weeks, before they corrected the problem (we found the money, oops, sorry about that). In the second case, I was being charged with recurring “insufficient funds fees” because of the bank’s mistake!!!

    In the second case, I had to ask my employer for a copy of the cancelled check to prove that the paycheck was cashed at that bank and the specific branch office. The HR person suggested that I join a credit union that the employer was affiliated with. And so I did.

    Most people join credit unions because they get better service and better interest rates on deposits.

    Where do I do my BANKing? At a credit union! Online BANKing and in-person BANKing.

    As a recent member of VSECU who is satisfied with the service I have received, I support VSECU’s efforts to fight this ridiculous “cease and desist order”!

    Why is VSECU being singled out? There are other credit unions using the words “bank” and “banking” on their websites (i.e. online banking). It seems like there is something else going on here…

  12. Ronald Pulcer :

    How about this approach? …

    VSECU will stop using the word “bank”, if/when the members banks of Vermont Bankers Association cease and desist in their use of the word “credit”?

    Check out these targeted Google searches of some credit union websites using the word “bank” in comparison to the following bank websites using the word “credit”:

    https://www.google.com/search?q=site%3Ahfcuvt.com+bank
    https://www.google.com/search?q=site%3Avsecu.com+bank
    https://www.google.com/search?q=site%3Amsufcuvt.org+bank

    https://www.google.com/search?q=site%3Avtbanker.com+credit

    https://www.google.com/search?q=site%3Abankofamerica.com+credit
    https://www.google.com/search?q=site%3Aberkshirebank.com+credit
    https://www.google.com/search?q=site%3Abrattbank.com+credit
    https://www.google.com/search?q=site%3Acitizens.com+credit
    https://www.google.com/search?q=site%3Acfsgtrust.com+credit
    https://www.google.com/search?q=site%3Acommunitynationalbank.com+credit
    https://www.google.com/search?q=site%3Acrbna.com+credit
    https://www.google.com/search?q=site%3Afnborwell.com+credit
    https://www.google.com/search?q=site%3Akeybank.com+credit
    https://www.google.com/search?q=site%3Alakesunbank.com+credit
    https://www.google.com/search?q=site%3Aledyardbank.com+credit
    https://www.google.com/search?q=site%3Amascomabank.com+credit
    https://www.google.com/search?q=site%3Ambvt.com+credit
    https://www.google.com/search?q=site%3Anationalbankmiddlebury.com +credit
    https://www.google.com/search?q=site%3Anbtbank.com+credit
    https://www.google.com/search?q=site%3Ansbvt.com+credit
    https://www.google.com/search?q=site%3Apassumpsicbank.com+credit
    https://www.google.com/search?q=site%3Apeoplestrustcompany.com+credit
    https://www.google.com/search?q=site%3Apeoples.com+credit
    https://www.google.com/search?q=site%3Arnbvt.com +credit
    https://www.google.com/search?q=site%3Atdbank.com+credit
    https://www.google.com/search?q=site%3Athebankofbennington.com+credit
    https://www.google.com/search?q=site%3Atcvermont.com+credit
    https://www.google.com/search?q=site%3Aunionbankvt.com+credit
    https://www.google.com/search?q=site%3Awrsb.com+credit

  13. Ronald Pulcer :

    Check out this quote found on the history page of VermontCreditUnions.com:

    “It is the contention of the credit union…that political democracy can be most securely buttressed by economic democracy. Logically, it should come to pass eventually that the masses of the people…will control in credit unions an appreciable segment of the national wealth. When they do, the great danger to our democracy that is contained in the trend to the control of a greater and ever greater proportion of the national wealth in an everdecreasing number of the people will be forever eliminated. There will result from this new accumulation of democratically controlled wealth safeguards of the American economic system that will be the soundest guarantee of the perfection and perpetuation of political democracy.”

    Quote by Roy F. Bergengren, 1952

    Is it any wonder why the banks don’t want the credit unions to be successful?

    Think of a credit union as a BANK with an “Annual Town Meeting”, where members are invited to attend and vote on proposals and issues at hand. Sounds like economic democracy to me.

    http://www.vermontcreditunions.com/
    http://www.vermontcreditunions.com/history/default.htm
    http://www.vermontcreditunions.com/Consumer/main.htm
    http://www.vermontcreditunions.com/Consumer/JOIN/vtcusearch.htm

  14. Marjorie Power :

    At first my reaction to this furore was “What are they thinking!” Then, reading the quotes from Commissioner Kimbell, it became clear. Then it begs the question, why don’t we tax you just like the banks? I don’t know what the answer is.”

    So here is the scenario. Public is outraged by the stupidity of the cease and desist order. Public demands a change to legislation enabling the credit union to use the words “banking” etc. in its advertising. While the bill is being considered, banking lobbyists assisted by the DFR suggest that if credit unions are banks they might as well be subject to the deposit tax.

    Win-win for banks and administration. Banks get to wound their competition. Administration gets to raise some revenues without, god forbid, increasing general taxation.

    Lose-lose for credit union members and the non-profit cooperative movement, and the general good that is fostered by a not-profit-driven business model.

    We need to keep on top of this. Don’t let them do it.

  15. Don Kreis :

    I must respectfully disagree with Margaret Power. In essence she argues that credit unions and other cooperatives should try to stay as invisible as possible lest the powers that be — bank lobbyists, etc. — discover what co-ops are up to. This is not a longterm strategy for success.

    If credit unions enjoy tax advantages it is because, unlike banks, there are no outside investors extracting wealth from the communities they serve. This point can be made, as necessary, at the State House.

    • Don Kreis :

      Well . . . I find myself in the position of needing to revise my previously expressed opinion somewhat.

      I am concerned about this quote, attributed to Commissioner Kimbell by the Times Argus: “If I’m a state-chartered bank and I pay the bank franchise tax and I’m in competition with a credit union providing very similar services, I think I’d take exception if they started pitching themselves as a place to do banking . . . .If the credit unions want to pay the franchise tax, they can go ahead and do that.”

      Although a hearing examiner will conduct next month’s VSECU hearing, Commissioner Kimbell is his department’s ultimate decisionmaker. His comments, if taken literally, are troubling because they suggest he will base his decision on his personal disagreement with the Legislature’s decision to exempt credit unions from the bank franchise tax.

      The VSECU is entitled to due process in proceedings before the Department of Financial Regulation. Administrative agencies get much more latitude than judicial decisionmakers do when it comes to notions of impartiality, according to both the Vermont and U.S. supreme courts. With all respect due to the commissioner, whom I have never met, and thus whom I assume to be a person of good character and intentions, I think he should explain his approach to the VSECU matter and why he thinks the issue of the bank franchise tax has any legal significance here.

      The investor owned banks might think an appropriate quid pro quo is that credit unions get to call themselves “cooperative banks” as long as they are willing to subject themselves to the bank franchise tax. But the Department of Financial Regulation is not supposed to take sides in such disputes, which should really play out before the Legislature. And there are sound reasons for exempting credit unions from the tax — which can properly be regarded as a levy on the profits investor-owned banks extract from the communities they serve. Credit unions are not extractive in this manner, and imposing such a tax on credit unions would, in effect, be a tax on customers.

      • Avram Patt :

        I agree with Don Kreis. The more we hear from the DFR, the more, I really regret to say this, it begins to have an odor…

  16. Jed Guertin :

    Dear Mr. Post,

    You have above a list of VSECU members who, I’m sure, would be happy to provide you with comments like:

    “I’ve been a member of the VSECU for over 20 years and have done all my banking there, from credit and debit card, checking account, savings account, CD’s, mortgage, car loan, business loan, etc. with them. I’ve done so with the greatest confidence in their banking skills and honesty.”

    Simply put their comments in your advertising. Let Mr. Kimble abuse them of the fact that they’re not banking with the credit union.

  17. Jed Guertin :

    Dear Mr. Post,

    May be the credit union could have a competition for its members,

    Each VSECU member submits a comment about the credit union. The best 3 comments receive $50.00 gift certificates to any restaurant of their choice. Those winning comments are used in VSECU’s advertising. And all the comments are posted on the VSECU website.

    What fun.

  18. walter moses :

    OMG–what about community food BANKS? What will Kimbell do now?????
    And then there are piggy BANKS!!!! Maybe porcine savings containers?????

  19. Laura Enock :

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