DENVER—A lawsuit filed against NCUA was "a last resort" after the regulator declined an application for deposit insurance from a credit union chartered last year to serve Colorado's legal marijuana industry.
"We've worked really hard to be open and transparent and try to provide—proactively, in some cases—as much information as we possibly could so that NCUA and the Federal Reserve Bank of Kansas City could make a determination on our application," said Deirdra A. O'Gorman, CEO at Fourth Corner CU here. "Basically we were left with no alternative but to file suit."
Fourth Corner has filed suit against both NCUA and the Federal Reserve, and O'Gorman said that even if NCUA feels the credit union poses a threat to the Share Insurance Fund, FCCU reps didn't have an appeal process to protest the regulator's decision, "so we had to take the suit to court in an attempt to right the regulatory record and be able to use that information to reopen a dialogue."
O'Gorman also insisted that Fed access is a significantly bigger hurdle for the fledgling CU than obtaining deposit insurance.
"There might be other sources for insurance, but there aren't a lot of other sources to get access into the payments system, because even through a corporate credit union or a correspondent we'd still have to get permission from the Federal Reserve," she said.
State-chartered CUs in the Rocky Mountain State are currently prohibited from purchasing private deposit insurance, a statute dating back more than a decade. But O'Gorman noted that the state "actually requires Colorado credit unions to first apply for federal insurance, but then if there are economic reasons or other reasons that they're unable to obtain that, then you work with the state on options for next steps." She added that Fourth Corner has not yet fully investigated other deposit insurance options outside of NCUA, but said that those won't matter without access to the payments system.
Colorado's interim Commissioner of Financial Services, Mark Valente, has not responded to interview requests from CU Journal on whether or not he would consider overturning the ban on private insurance.
It's Not Pot?
One CU that has gingerly dipped a toe into serving Colorado's legal marijuana industry is Arvada, Colo.-based Partner Colorado Credit Union, and CEO Sundie Seefried told CU Journal that she believes NCUA's denial of FCCU's application has nothing to do with issues of marijuana legality.
While the drug is still illegal at the federal level, Seefried said she believes the roadblocks Fourth Corner has encountered are more about the layered risks of a newly chartered credit union, including historical operations, capital position, ROA, management and economic factors, as well as the industry being served.
Seefried said she believes that as more and more people learn about the legal marijuana industry, the more comfortable they will become with letting those businesses and associated consumers into the formal banking system. "The industry is so big here," she said. "There are 2,800 businesses related to marijuana so there is a huge marketplace and a lot of unbanked companies at this point in time that do need the service."
She added the caveat, however, that legalizing the drug or some other sort of reclassification "will not change the approach to monitoring the industry and having solid BSA programs in place to meet the FinCEN guidelines. It will take years to build comfort and lower regulatory requirements surrounding the industry."
Earlier in July Seefried told a credit union crowd in Denver that CUs should make an effort to serve these businesses since they are a classic example of an underserved market. Partner Colorado has been able to provide deposit services to Colorado pot shops because it was essentially grandfathered in by already having deposit insurance and access to the Fed. She said she believes more and more credit unions are realizing the growth opportunity the marijuana industry represents.
"People are going to say 'If Partner Colorado can do it, so can we,'" she said. "The more people that get into it and stay in it and move through exams with success, the more credit unions will build interest and move down that path."
Restarting the Dialogue
O'Gorman said Fourth Corner is not concerned about the possibility of losing market share to other CUs because of the delays they've been presented with.
"There's been a fundamental misunderstanding about our charter," she said. "Although we would be a credit union that specializes in the cannabis and hemp industries, we would also provide services to non-cannabis businesses as well as supporters of the industry. We'd have a healthy amount of consumer accounts." While that provides FCCU with a path to diversify its member base and book of business, she also said that the industry is growing fast enough that the credit union can enter the market late and still be competitive.
O'Gorman said her CU hasn't had enough dialogue with NCUA or the Fed to be able to speculate whether or not the regulators' motivations are based around the drug's legal status.
"That's another reason to file suit; so we can hopefully have a dialogue about this and really understand where the issues are so we can help fix them," she said.
Seefried, for her part, was bullish about Fourth Corner's future.
"It seems like the path they're headed down is just more difficult than anyone expected," she said. "I feel bad, because Colorado does need institutions to serve the industry for the safety factor alone, if nothing else. They have a great vision to get that done, but the roadblocks are pretty big. Like any start-up, I think it's going to take time."