State officials will allow the largest credit union in Vermont to use the word “banking” in advertisements. The Vermont State Employees Credit Union will not, however, be permitted to refer to itself as a “bank.”
Steve Kimbell, commissioner of the Department of Financial Regulation, reached an agreement with credit union officials on Friday. The new interpretation of state statute allows VSECU to use the word “banking” in advertisements as long as it “discloses that it is a credit union.” Under the law, credit unions still can’t call themselves banks, and banks can’t call themselves credit unions.
“I want to thank the VSECU for its help in finding a way to reasonably apply a decades-old statute in a rapidly changing environment for financial services,” Kimbell said.
Kimbell’s decision is an about-face. In June, he 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. Read the VTDigger story.
VSECU appealed the decision and asked for a hearing, which was granted in August.
Under the department’s previous interpretation of Vermont law, state chartered credit unions, until now, could not transact business as a bank and could not advertise their services as “banking.”
At issue was whether consumers were confused when a credit union, which may have many of the same financial services as a bank, uses the word “banking.” At the time, Kimbell said the term could lead members of the public to believe a credit union is in fact a bank.
Steven D. Post, CEO and president of VSECU, said in July that the word “banking” best describes the services the nonprofit cooperative offers. It’s hard, he says, to replace “banking” with “credit unioning.”
The announcement is a victory for the credit union. “This is not a matter of who won or lost a dispute, but an example of the state’s regulators and industry working together to solve a problem,” Post said in a statement on Friday.
“The basic issue as we see it is we are using truthful, accurate words to describe what we do and who we are,” Post said in July. “The word ‘banking’ is ubiquitous, truthful, nonconfusing and commonly understood by consumers.”
Chris D’Elia, president of the Vermont Bankers Association, said the decision doesn’t go far enough to uphold existing statute. “To some degree, we think the credit union is trying to skirt the law with this,” D’Elia said.
“Credit unions do not fall under the definition of a banking institution under state statute,” D’Elia said. “We think there is a question whether they are still complying with the law because the law does not make a distinction regarding how the term is used. It talks about the term in the context of a financial institution and they are not a financial institution, they have a different section of the statute that defines credit unions.”
The dispute over the word “banking” began in 2007. The department then required VSECU to submit ads for review. The issue laid dormant until last fall when VSECU began to use the descriptor “banking cooperative” in its advertising.
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. Credit unions also do not pay sales tax or rooms and meals taxes.