It's not clear yet whether the Wisconsin Bankers Association will legally challenge the NCUA's opinion letter that says the Federal Credit Union Act and the independent federal agency's advertising rule preempts Wisconsin's laws with respect to a federally insured credit union's use of the word, bank, as a verb.

But it sure sounds like the Badger State bankers are gearing up for what could be a new legal battle after describing NCUA's May 11th letter as flawed, ludicrous, and whether it has the authority to issue an opinion letter.

Rose Oswald Poels, WBA's president/CEO in Madison, said in an interview with CU Times Wednesday that the association is conducting legal research to determine its strategic options, noting that the NCUA's letter is disturbing from a legal perspective and from a choice of charter perspective.

“I don't believe that in this instance the NCUA has preemption authority to issue an opinion or an interpretation on what Wisconsin law says to Wisconsin chartered financial institutions,” Poels said. “We have a state agency that issued an interpretation of the state law affecting state chartered institutions, and when you read NCUA's typical preemption letters they are preempting a state law only as it relates to federally chartered credit unions. This is much broader than that, and I think  that overreach is questionably illegal.”

WBA said it was emailing its Congressional Delegation to inform them of “this overreach” and asked them for tax and regulatory parity.

The Wisconsin association also said it is waiting for information from the Wisconsin Department of Financial Institutions as to its position regarding this issue.

However, DFI Communications Director George T. Althoff said the state agency has not issued a statement and does not intend to.

Wisconsin banking law forbids any organization that is not subject to supervision or examination by the Wisconsin Division of Banking from referring to itself as a bank or that it is engaged in the business of banking. In addition, the state's deceptive trade practices act prohibits any person or organization from making untrue, deceptive or misleading advertisements. The use of the word bank as a verb could be interpreted as a violation of that law.

The Wisconsin Credit Union League asked the NCUA if the Federal Credit Act and the NCUA's advertising rule preempts the Wisconsin laws.

“We believe that these two statutes are preempted with respect to a federally insured credit union's use of the word “bank” as a verb to generally refer to the provision of financial services. This includes derivative term s such as “banking,” “mobile banking,” or “online banking,” wrote NCUA's General Counsel Michael J. McKenna. “For example, under the FCU Act and the NCUA's advertising rule, a federally insured credit union would be permitted to state “Members who bank with us receive free mobile banking services.” We do not believe, however, that either the FCU Act or the NCUA's advertising rule would permit a federally insured credit union in Wisconsin to refer to itself as a “bank” or a “banking organization.”

The Wisconsin league's question to the NCUA was apparently prompted by a June 9, 2017 letter from the Wisconsin Department of Financial Institution about the use of the word bank under state law, which was later withdrawn, according to the NCUA.

In that letter, McKenna wrote that the Wisconsin Division of Banking did take the position that the use of the word “bank” or its derivative terms indicate that a federally insured credit union's “business is the business of a bank,” and that such a use would violate Wisconsin banking laws.

The state regulator was unable to say Wednesday why the letter was withdrawn and it could not be found on DFI's website.

In addition to citing a number of court rulings and case laws to support NCUA's argument, McKenna also noted that Wisconsin laws could jeopardize the financial safety and soundness of credit unions.

“The use of generic terms such as “bank,” as a verb, or “banking” which are widely accepted by consumers to refer to the provision of financial services allows a federally insured credit union to effectively compete with other insured depository institutions in the market for consumer financial services,” McKenna wrote. “Prohibiting federally insured credit unions from using these terms inhibits their ability to compete and, thus, jeopardizes their safety and soundness.”

Poels countered that the letter's hyperbolic language tests credulity.

“NCUA goes so far as to claim the inability to use misleading terminology in advertising would “jeopardize” credit unions' safety and soundness,” she said. “NCUA's opinion also claims preemption of Wisconsin law is necessary to create a “level playing field” between state and federally chartered credit unions. It is disingenuous for the NCUA to claim it is striving to create equality among competitors with this interpretation while entirely ignoring the unfair tax and regulatory advantages credit unions enjoy.”

A similar issue surfaced and was first reported by CU Times last summer when Canada's Department of Finance in Ottawa was reviewing an advisory issued by the Office of the Superintendent of Financial Institutions. The OSFI proposed authorizing the federal government to bring criminal charges against any credit union that uses the words bank, banking or banker on any printed materials, websites, social media sites, and signs.

That advisory, however, was dropped in late February by Canada's Finance Minister Bill Morneau, according to the Canadian Credit Union Association.