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.