Vermont Regulator, CU Reach Agreement on CUs' Use of 'Bank'
The issue drew national attention this summer after the credit union received a notice of DFR's intent to issue a cease-and-desist order regarding VSECU's marketing and the credit union requested an administrative hearing.
Vermont state statute prohibits credit unions from using such words unless the DFR Commissioner finds the use would not mislead or confuse consumers as to the nature of the institution, said VSECU and DFR in a joint press release.
Under the agreement, the credit union will not describe itself as a bank but may use the word "banking" and similar words when advertising its services as long as it discloses that it is a credit union. The disclosure that VSECU is a credit union must be "clear and conspicuous so that reasonable consumers can read, see or hear and understand the information."
The two parties agreed to settle and withdraw any and all claims and actions, terminating the hearing process that had been underway.
Credit Union National Association General Counsel Eric Richard said that "this settlement should allow Vermont credit unions plenty of flexibility to market their services to people who might otherwise be thinking of patronizing a bank. And it is always good to avoid the costs of litigation."
They agreed that VSECU "will not describe itself as a 'banking cooperative,' 'banking co-op,' 'bank,' 'banking association,' 'trust company,' or other similar sounding word or name in its advertising or marketing,'" and would discontinue using these phrases in its materials beginning Nov. 15. DFR would not take regulatory action on VSECU's use of such wording in referring to itself.
The agreement specified that "VSECU is not prohibited from using the word 'bank' or any derivative of the word 'bank' to describe its services or to differentiate itself from a bank, e.g. by describing itself as a 'banking alternative' or as an entity that is 'redefining banking,'" according to the agreement document.
The agreement also defined services and advertisements that applied and noted that items used solely to promote VSECU's brand (such as gifts, premiums and the display of logos and slogans) are excluded.
The agreement also clarified that VSECU can use "bank" or "banking" or derivative terms or phrases in the text of hyperlinks or search engine designated links, and that in these situations it would not be required to include the term "credit union" in the link text. VSECU will disclose on the landing page of those links that it is a credit union.
"I want to thank the VSECU for its help in finding a way to reasonably apply a decades-old statute in a rapidly changing environment for financial services," said DFR Commissioner Steve Kimbell.
"This is not a matter of who won or lost a dispute," said Stephen D. Post, VSECU CEO, "but an example of the state's regulators and industry working together to solve a problem."
The credit union's request for a hearing "teed up a matter that's been in discussion for a number of years," said Kimbell. "It gave us a context in which to reach agreement on how to apply the statute."
Post noted the credit union is "pleased to go forward offering its services to all who work or live in Vermont knowing that it and DFR are on the same page."
Association of Vermont Credit Unions President Joseph G. Bergeron said, "I think anyone would be very hard pressed to find any consumers confused, whether by VSECU's or any other Vermont credit union's advertising, such that they thought they were dealing with a bank of any sort. Although it's unfortunate that such a disagreement over simple language rose to this level, I commend both VSECU and the department for arriving at a mutually acceptable compromise that applies to all state charters and allows them to say what their members understand…do your 'banking' with a credit union," Bergeron added.
DFR has posted a bulletin or an "interpretation of the wording of the law" on its website as guidance to all state-chartered credit unions so that a standard can be followed.