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Vermont Credit Union Ordered Not To Call Itself a Bank

by William Boardman, published

Some might say a Vermont credit union is just another kind of bank. However, the State of Vermont says it is not and that credit unions calling themselves banks could be subject to civil penalties.

The Vermont Dept. of Financial Regulation decided in June that the Vermont State Employees Credit Union (VSECU) had to stop using the word “banking” to describe the activities of the credit union, even though many of those activities are identical to those performed by banks.

In the eyes of Commissioner of Banking, Insurance, Securities and Health Care Administration Steve Kimbell, the credit union violates a 12-year-old statute (8 VSA 14103) designed to protect consumers against fraudulent representation in banking. The credit union, which is state chartered, counters this is protected by free speech, noting that federal law allows federally chartered credit unions to call themselves banks.

Commissioner Kimbell’s notice to VSECU orders it to cease and desist in the use of the words “bank,” “banking,” and the like in its advertising. He cites the relevant statute, which provides for the commissioner to disallow such usage if he decides it will confuse the public.

In nine pages of legalistic argument, Kimbell’s order parses a variety of statutes controlling the use of words like “bank” under state and federal law. However, nowhere in those nine pages, including the seven page cease and desist order, does he cite a single instance of consumer confusion. Nor does he cite the abstract possibility of consumer confusion. Kimball apparently bases the order on the narrowest possible reading of the statute.

VSECU defines itself as a “Not for Profit Banking Cooperative.” What that could be changed to, without confusing consumers, commissioner Kimbell does not say. Perhaps “Not for Profit entity that does deposits, checking, and loans that we can’t, by law, describe accurately Cooperative” would meet the commissioner’s standards, but this would seem more rather than less confusing.

VSECU is already concerned about possible confusion from its present designation as a “not for profit banking cooperative,” noting “That’s a mouthful and we know that most people don’t really think about the significance of our structure when looking for the best banking options. But it really is our structure – being member-owned cooperatively and existing not to make a profit – that enables us to be a better banking option for you.”

Not surprisingly, VSECU has appealed commissioner Kimbell’s order. In a preliminary hearing on August 22, attorneys for the parties asked for time to reach a negotiated settlement. The hearing officer granted the request.

VTDigger broke the story a month after commissioner Kimbell initiated his action and when VSECU lodged its appeal. The story drew a host of posts, largely mocking or suspicious of Kimbell, or both. One writer wondered what he was now supposed to call river banks, while another fretted over food banks.

Vermont Law School professor Donald Kreis, noted Kimbell’s apparent bias in favor of commercial banks. Kimbell said, “If I’m a state-chartered bank and I pay the bank franchise tax and I’m in competition with a credit union providing very similar services, I think I’d take exception if they started pitching themselves as a place to do banking… If the credit unions want to pay the franchise tax, they can go ahead and do that.”

Kreis later posted an op-ed on VTDigger that the VSECU put on its own website, concluding, “On the merits, Kimbell should leave credit unions alone.”

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