Vermont’s banking regulator said Wednesday the controversy over Vermont State Employees Credit Union and other credit unions in the state using “bank” or “banking” in advertising has been a legal issue that’s percolated for years and has now formally surfaced.
Thomas Candon, the state’s deputy commissioner of banking, said a 1969 law states that only banks can use “banks” or “banking” in their advertising and a similar 2006 recodified law provides the same limitations or barriers for “credit unions” for use in industry ads.
- UPDATE, Oct. 8, 2012, Vermont Credit Union, Regulator Settle 'B' Word Dispute
Candon’s agency, the Department of Financial Regulation, issued a June 18 cease-and-desist order against the $600 million Montpelier credit union ordering it to stop using those terms in its advertising and other marketing communications. VSECU then requested a hearing to appeal the order.
Candon, a former banker who has been in the top supervisory slot 19 years, said he could not discuss much more about the hearing or factors leading up to the order except “that all parties are being informed on a mutual acceptable date for a hearing in late August,” at a date to be announced.
Candon said the “bank” usage in ads by credit unions “has often been discussed for years with all credit unions at various times” but he said he was unfamiliar with any similar dispute under way elsewhere.
Officials of the Vermont Bankers Association, which could become a party to any future legal wrangling, said Candon had become frustrated with VSECU’s ads and agreed to requests from Vermont bank CEOs that the law be enforced.
“Candon has always been a supporter of credit unions but not this time around,” said Chris D’Elia, president/CEO of the VBA.
VSECU in its appeal filed Monday said its petition for declaratory relief indicates that DFR's 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’s 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 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.