A recent decision by the Canadian government could have long-lasting negative implications – both financial and otherwise – for that nation’s credit unions.
Last month, Canada’s federal banking regulator, the Office of the Superintendent of Financial Institutions, issued an advisory calling for a strict interpretation of the existing Bank Act, the Canadian legislation that relates to the operation of banks and credit unions in the country. The directive calls for credit unions to eliminate the words “bank” and “banking” from their websites by the end of this year, from all printed materials by June 30, 2018, and from all signage by June 30, 2019.
The cost to credit unions? An estimated CA $80 million ($62 million in U.S. currency), according to the Canadian Credit Union Association.
“Ottawa is telling credit unions to stop using the words Canadians use to describe the work we do,” CCUA President and CEO Martha Durdin said in a statement. “This rule will prevent credit unions from advertising their business banking services or even having an online banking button on a website." Having to create and popularize new words, she lamented, represents an "unnecessary and expensive undertaking, and will make it difficult for credit unions to compete fairly with banks.”
While Canadian CUs operate with the same “people helping people” philosophy as U.S. credit unions, there are a few key differences. For one thing, the movement north of the border is significantly smaller, encompassing just 5.6 million members (out of a population of 36 million) and about $205 billion in total assets. Canadian CUs are also taxed, unlike their American counterparts.
‘Part of the vernacular'
Canada’s credit union movement began in 1908 – around the same time as the first American credit union opened its doors – and in an interview with CU Journal, Durdin explained that Canadian credit unions have used the terms “bank” and “banking” for decades, with the tacit approval of the federal government. So after all that time, she said, a change in policy could lead to significant confusing among the public
“It’s part of the vernacular now and most credit union members and customers have been using the word ‘banking’ themselves to describe what kinds of services their credit union provides,” she said.
According to Brendan Denovan, communications manager at Co-operatives and Mutuals Canada, an association that supports and promotes co-operative and mutual organizations, “it will be a disadvantage for credit unions to use alternative language to describe their services differently,” since the term “banking” is widely understood as defining the transactions one makes with a financial institution.
For example, Denovan said “I bank with a credit union” as a common statement used by some credit unions.
“How or why should that be altered?” he asked rhetorically. “I do not know of an alternate verb that better conveys the breadth of financial services offered by both banks and credit unions.”
Durdin further cautioned that a phrase like “financial services” would not suffice either since that is a rather broad umbrella term which includes such activities as insurance, which many credit unions do not offer.
”Even before this latest advisory, we [CCUA] had been in consultations with OSFI over the use of the word ‘bank’,” she said. “But it now appears that they have lost interest in furthering that discussion.”
One of the unintended consequences from OSFI’s ruling has been to unite the Canadian credit union movement, with CU advocates across the country gearing into action to fight the ruling.
CCUA said it is asking the federal finance minister, Bill Morneau, to reverse the OSFI advisory, either by inserting a change to the Bank Act or by introducing a regulation that will permit credit unions to continue to use words like "bank" or "banking" without facing any criminal penalties.
“OSFI has taken a position that is inconsistent with its past practices and with common sense,” Durdin said in a statement. Morneau “has the power to fix this so that Canadians continue to have a real competitive option to the big banks.”
For the moment, CCUA and its regional organizations across Canada are lobbying government figures to revoke the ruling, citing that it will pose a financial hardship and serves no beneficial purpose.
Denovan described the advisory as “a solution in search of a problem,” but he is hopeful the decision will be repealed if political pressure is applied. “It doesn’t seem to be a well-grounded decision,” he added.
In any event, added Denovan, CMC will support CCUA in any action they determine necessary to fight this decision.
For her part, Durdin posited that credit unions may not be the real target here. Rather, she said, CUs are being negatively impacted by a ruling aimed at the fintech sector.
“We [credit unions] are not like fintechs at all,” Durdin said. “We are regulated, we have deposit insurance and various other safeguards. We have been a part of the Canadian economic landscape for over 100 years and we are firmly established in the financial ecosystem.”
Could it happen here?
The question many U.S. credit union observers are left with is whether or not such a scenario could occur here. And while most agreed that the possibility was remote, it isn’t entirely out of the question.
Geoff Bacino, a former NCUA board member and now a credit union consultant with Bacino & Associates in Alexandria, Va., was skeptical that such a law could ever be applied in the U.S. – and he doubts the Canadians themselves can even enforce it.
"All financial institutions are essentially in the same business,” he said. “It would be similar to not allowing hockey teams to mention football or baseball since the assumption is that hockey is in competition with the other sports. It seems to be a silly effort to control discussion."
Carrie Hunt, executive vice president of government affairs and general counsel at National Association of Federally-Insured Credit Unions, told Credit Union Journal “It is unlikely that we would see this kind of restriction come out of the [National Credit Union Administration],” and if such a move did take place it would be vociferously opposed by the credit union trade groups.
Dennis Dollar, a former NCUA chairman and now an Alabama-based credit union consultant, suggested the “absurd” ruling was “obviously driven” by Canada’s banking lobby
He conceded U.S. bankers could conceivably seek to remove the ability of stateside credit unions from using the word “banking” from the description of their services. “It’s possible because it is all driven by competition and profit margins," he observed, adding that such a move would be “about as ridiculous in the U.S. as it is … in Canada.”
Stop me if you’ve heard this one before...
If the Canadian ruling sounds familiar, it could be because it’s similar to attempts undertaken at the state level in recent years.
In 2012, Montpellier, Vt.-based Vermont State Employees Credit Union entered into a dispute when the state regulator tried to stop the credit union from describing its services as “banking” in its advertisements. The credit union ultimately won that fight, with the proviso that it discloses that it is a credit union and not a bank
“We reached a clear agreement under which we can describe the services we offer as ‘banking,’ while prohibiting us from calling ourselves a bank,” said Yvonne Garand, SVP of marketing and business development for VSECU. “And we have not had any similar issues with them ever since then.”
Some other state-chartered credit unions in U.S. have faced similar restrictions.
For example, in Minnesota, there exists a state statute that governs the parameters by which the term “banking” can be used. Currently the Minnesota Department of Commerce interprets this statute to apply to state chartered credit unions.
John Wendland, VP and general counsel at the Minnesota Credit Union Network, said the league is monitoring the situation in Canada and will continue to work with state regulators as they attempt to improve Minnesota statutes.