MONTPELIER, Vt. (7/25/12)--An op-ed article written by a Vermont law professor about the battle between the state regulator and Vermont State Employees CU (VSECU) over the credit union's use of "bank" and "banking" in its marketing supports the credit union.
It also points out that the battle over words could really be a battle about taxation.
The state Department of Financial Regulation (DFR), which regulates state-chartered credit unions and banks, issued a notice June 18 of a cease-and-desist order against VSECU, prohibited it from using the words, saying it was concerned that consumers and members are confused when the credit union uses them.
The $573 million asset VSECU requested a hearing over the matter, which centers on the use of "bank," "banker," "banking co-op," "banking cooperative," or "any other similar sounding word or name." The battle has attracted credit unions' and media attention across the nation (News Now July 19 and 20).
Donald M. Kreis, associate director and assistant professor of law at the Institute of Energy and the Environment of Vermont Law School, noted in the Vermont Digger Monday that the question "turns on many things. But one thing it should not turn on is the subjective opinion of the commissioner of financial regulation that the legislature lets credit unions get away with not paying a tax he believes they ought to pay."
Kreis was referring to the state's bank franchise tax. He wrote that the ultimate decision-making authority [on the b-word battle] is vested in Financial Regulation Commissioner Steve Kimbell, who has made at least one public comment that "comes dishearteningly close to a suggestion that he would apply the law he is tasked with applying differently if only credit unions would volunteer to pay the franchise tax," said Kreis. The commissioner said the matter of the using the words is one of protecting the consumer so consumers know what kind of financial institution they are dealing with, said the op-ed.
Kreis was quick to point out that credit unions are exempt from the franchise tax in question. "It's not up to the commissioner of Financial Regulation to determine whether the legislature did the right thing by exempting credit unions from a tax to which investor-owned financial institutions are subject," he wrote.
"On the merits, Kimbell should leave credit unions alone," Kreis wrote. "The plain language of the statute does not preclude credit unions from referring to banks or banking in its promotional materials. Even if the statute is ambiguous, it should be interpreted in a manner that advances its fundamental purpose--which is to protect the public from financial fraudsters, not credit unions," he added.
A credit union is a cooperative and "the idea that consumers might confuse their local credit union with a financial institution with the word 'bank' in its name is absurd," wrote Kreis.
If the department rules against VSECU, "it will likely engender rather than resolve confusion. This is because federal law grants federally chartered credit unions the right to use the word 'banking' and its variants. The pending case applies only to state-chartered credit unions like VSECU."
"The cooperative difference provides a principled basis for the distinction Kimbell dislikes between credit unions and investor-owned banks when it comes to the bank franchise tax. The levy can, and should, be regarded as a tax on profits that would otherwise go to investors, of which credit unions have precisely none, " Kreis said.
He concluded with a "bitter irony": "the nation's oldest and perhaps its most venerable credit union happens to be in New Hampshire. The name of that state chartered credit union? St. Mary's Bank."
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