Vermont's banking regulator said Wednesday the controversy overVermont State Employees Credit Union and other credit unions in thestate using “bank” or “banking” in advertising has been a legalissue that's percolated for years and has now formallysurfaced.

Thomas Candon, the state's deputy commissioner of banking, saida 1969 law states that only banks can use “banks” or “banking” intheir advertising and a similar 2006 recodified law provides thesame limitations or barriers for “credit unions” for use inindustry ads.

• UPDATE, Oct. 8, 2012, Vermont Credit Union, Regulator Settle 'B' WordDispute

Candon's agency, the Department of Financial Regulation, issueda June 18 cease-and-desist order against the $600 million Montpelier credit union ordering it to stop using those termsin its advertising and other marketing communications. VSECU thenrequested a hearing to appeal the order.

Candon, a former banker who has been in the top supervisory slot19 years, said he could not discuss much more about the hearing orfactors leading up to the order except “that all parties are beinginformed 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 oftenbeen discussed for years with all credit unions at various times”but he said he was unfamiliar with any similar dispute under wayelsewhere.

Officials of the Vermont Bankers Association, which could becomea party to any future legal wrangling, said Candon had becomefrustrated with VSECU's ads and agreed to requests from Vermontbank CEOs that the law be enforced.

“Candon has always been a supporter of credit unions but notthis time around,” said Chris D'Elia, president/CEO of theVBA.

VSECU in its appeal filed Monday said its petition fordeclaratory relief indicates that DFR's order “is unsupported bylaw, illegal, unconstitutional on its face and as applied to VSECU,and would open VSECU to substantial future penalties and damages ifit were to be entered as a final order.”

The DFR's order cited Section 14103 of title 8 in the state lawthat says: “No person shall advertise or put forth any sign as abank, banking association or trust company, or in any way solicitor receive deposits or transact business as a bank, bankingassociation, financial institution or trust company, or use thewords 'bank,' 'banking association,' or 'trust company' or othersimilar sounding word or name unless it is a financial institutionreporting to and under the supervision of the commissioner or isauthorized to conduct such business in this state under federallaw, or unless the commissioner approves the activity or word orname used in writing after giving due consideration for whether theactivity, word or name will confuse or mislead the public as to thenature of the business of the entity.”

The department's order said the credit union is not one of theentities that may use these words “or any other similar soundingword or name, including but not limited to 'banking,' 'banker,''banking co-op,' 'banking cooperative,' and 'not for profit bankingcooperative,' to describe itself, its services, or itsactivities.”

These words are “limited to financial institutions” and usingthem “is misleading and, at a minimum, significantly blurs thelines between a credit union and a bank and will confuse thepublic,” the DFR order notice said.