DENVER—Fourth Corner CU here, chartered last year to serve Colorado's legal marijuana industry, has filed lawsuits against NCUA and the Federal Reserve after having its applications rejected for share deposit insurance and access to the Fed system, respectively.

The credit union, Colorado's first new charter in a decade, was expected to open earlier this year, but was unable to do so because it did not have federal deposit insurance or access to the Federal Reserve system.

According to a July 2 letter from NCUA's Office of Consumer Protection, quoted in the complaint, "fundamental concerns about the inherent risks of [Fourth Corner's] business model remain unresolved," while the CU "has no historical data NCUA can use to make a decision in determining insurance risk." NCUA also told the credit union that it had not provided "sufficient information and documentation to allow NCUA to make fundamental determinations about risk" to the share insurance fund, and that it had not provided ample documentation to show how it would comply with enhanced monitoring requirements and guidance for pot-related businesses, nor how it would "mitigate the extensive risk associated with a business model of only serving marijuana-related businesses."

Following NCUA's rejection, on July 16 the Federal Reserve's Kansas City branch turned down FCCU's request for Fed access.

The Complaint

According to a copy of the 81-page complaint filed against NCUA, Fourth Corner representatives allege that:

  • NCUA deprived the CU of due process, violating the Fifth Amendment and NCUA's own procedures
  • that regulators "acted arbitrarily, capriciously, not in accordance with law and abused its power" by concluding that the CU could not satisfy Department of Justice, FinCEN and Bank Secrecy Act monitoring requirements
  • that the agency made a further arbitrary, capricious decision "in concluding [the credit union's] business model served a single industry that does not have an established track record and remains illegal at the federal level"
  • that NCUA "abused its discretion" in rejecting the business plan that was approved by the Commissioner of [Colorado's] DFS
  • that federal regulators discriminated against a state-chartered CU and acted in favor of federally chartered and federally insured credit unions
  • that NCUA abused its power in applying net worth requirements to a new credit union and by interpreting the law "as requiring a new credit union seeking share deposit insurance as being required to provide 'historical data NCUA can use to make a decision determining insurance risk'"
  • that NCUA did not give enough consideration to Colorado's DFS decision to grant the credit union a charter.

NCUA's 'Nefarious Scheme'

Fourth Corner's complaint concluded that "The NCUA does not trust highly qualified state regulators with superior local knowledge, familiarity with a state-spawned industry, and their eye on the ball, to properly charter, regulate, supervise and examine [the credit union]. Thus, in order to carry out their nefarious scheme to unlawfully block [Fourth Corner] from the Federal Reserve payments system, the NCUA concocted an over-the-top denial of the federal deposit insurance application by including a series of baseless and gratuitous findings impugning the reputations and work of the multitude of highly qualified professionals that worked on [FCCU's] business plan and its AML compliance model, manual and protocols."

The complaint also notes that allowing legal marijuana businesses access to banking services would "solve a serious public-safety problem," a topic touched on earlier this month at a forum on marijuana banking during CUNA's America's Credit Union Conference and the World Council of CUs' joint conference in Denver.

NCUA spokesman John Fairbanks said the agency had received a copy of the complaint and was reviewing it but could not comment on pending litigation.

Fourth Corner representatives have not returned Credit Union Journal's calls requesting an interview.

Deposit Insurance Dilemma

In an interview with the New York Times, Fourth Corner representative Mark Mason claimed that even without federal deposit insurance the CU could still open its doors by obtaining private deposit insurance, provided it could gain access to the Fed. But Colorado's state-chartered credit unions are prohibited from seeking private insurance, and former Commissioner of Financial services Chris Myklebust told CU Journal last year that "there isn't any private insurance out there that has the full faith and credit of the United States government behind it, therefore there is no comparable insurance. Therefore I would not allow for private insurance as long as the NCUA is an option."

However, Myklebust in June was named as the state's new Commissioner of the Division of Banking, with Mark Valente currently serving as interim commissioner. Credit Union Journal reached out to Valente for comment but has not yet received a response.

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