That didn’t take long.

A decision yesterday from the National Credit Union Administration permitting Wisconsin’s state-chartered, federally insured credit unions to use the words “bank” and “banking” in their advertisements and literature has quickly turned into a dispute between the regulator, the Wisconsin Credit Union League and the Wisconsin Bankers Association.

At issue is NCUA’s statement in the letter that the Federal Credit Union Act preempts a pair of Wisconsin statutes governing whether or not a financial institution can refer to itself as a “bank” and another relating to deceptive advertising practices. NCUA, in a letter from general counsel Michael J. McKenna, said CUs may use the word “bank” specifically as a verb “to generally refer to the provision of financial services.”

“For example, under the FCU Act and the NCUA’s advertising rule, a federally insured credit union would be permitted to state ‘Members who bank with us receive free mobile banking services,’” wrote McKenna. “We do not believe, however, that either the FCU Act or the NCUA’s advertising rule would permit a federally insured credit union in Wisconsin to refer to itself as a ‘bank’ or ‘banking organization.’”

Rose Oswald Poels, Wisconsin Bankers Association
Rose Oswald Poels, CEO, Wisconsin Bankers Association

Level playing field?

McKenna added that allowing federally insured state-chartered CUs to use the terms “bank” and “banking” is “particularly important because it allows those institutions to compete on a level playing field with federal credit unions which are generally unburdened by such state laws.”

According to Paul Guttormsson, VP of legal and compliance at the Wisconsin Credit Union League, the issue arose when some Wisconsin banks claimed that some non-bank financial institutions in the state, including some CUs, were violating state statutes by using those words in their advertisements and literature.

The Wisconsin Department of Financial Institutions would not comment on NCUA’s decision, but the letter quickly attracted the ire of the Wisconsin Bankers Association, with WBA President and CEO Rose Oswald Poels writing in a statement that the federal regulator “lacks the authority to issue this opinion.”

“The NCUA claims their advertising rule preempts Wisconsin state law in two instances: the Wisconsin Deceptive Trade Practices Act and a banking law governing the use of the word ‘bank,’” she continued. “The opinion's hyperbolic language tests credulity. NCUA goes so far as to claim the inability to use misleading terminology in advertising would ‘jeopardize’ credit unions' safety and soundness.”

Poels also fired back at NCUA’s contention that preempting Wisconsin law is necessary to create a "level playing field" between state and federally chartered credit unions, calling it “disingenuous” for the agency to claim it is “striving to create equality among competitors with this interpretation while entirely ignoring the unfair tax and regulatory advantages credit unions enjoy.”

Poels added that she hopes NCUA and all stakeholders involved “will consider the best interests of consumers while seeking a resolution to what we interpret as a significant overreach of the NCUA's power."

Noun or verb?

Paul Guttormsson of the Wisconsin CU League told Credit Union Journal that NCUA in its letter made a strict distinction between using the word “bank” as a noun or a verb.

“We can use the word ‘bank’ or ‘banking’ as a verb to describe our services and products, but we cannot use it as a noun,” he said. “That is, we can say things like ‘do your banking here,’ but we can in no way identify or describe ourselves as a bank.”

According to McKenna’s letter, “The use of generic terms such as ‘bank,’ as a verb, or ‘banking,’ which are widely accepted by consumers to refer to the provision of financial services allows a federally insured credit union to effectively compete with other insured depository institutions in the market for consumer financial services. We believe this can be accomplished without confusing consumers.”

Guttormsson said NCUA’s letter applies specifically to credit unions in Wisconsin and not nationally, though the league had also previously stated that “extending the preemption to state-chartered, federally insured Wisconsin credit unions additionally can provide guidance for similarly chartered institutions elsewhere.”

Michael Semmann, EVP/chief operations officer for the Wisconsin Bankers Association
Michael Semmann, EVP/COO for the Wisconsin Bankers Association

The league VP reminded that other states have had similar issues, and in fact last summer a dispute arose over whether Canadian credit unions were permitted to use similar verbiage, though the nation’s finance minister eventually determined earlier this spring that CUs there are permitted to use those terms.

While CUs in Wisconsin may be celebrating a victory, it is unclear what the next steps will be. State banking regulators have not indicated how they will proceed, but Michael Semmann, EVP/chief operations officer for the WBA, said the trade group is doing “more research” on this matter to determine what its “best options” are.