Monday, July 23, 2012

Not a Credible Threat

Vermont State Employees Credit Union (VSECU) is considering whether to switch from a state to federal charter, if the state regulator denies its appeal of a cease and desist order over the use of the term "bank" in its advertisements.

But I think VSECU is bluffing.

VSECU, as best as I can tell, has a hybrid charter. Its field of membership includes individuals who live and work in the state of Vermont, but also includes other select groups.

However, the Federal Credit Union Act does not permit such hybrid charters. A federal credit unions must have one of the following common bonds -- single common bond, multiple common bond, or community common bond.

In addition, the Federal Credit Union Act requires a community charter to be local and well-defined. NCUA's chartering manual explicitly states that although state boundaries are well-defined, a state does not meet the local requirement.

In other words, VSECU could not keep the state of Vermont as a community charter, if it switched charters.

Therefore, switching to a federal charter would require VSECU to make substantive changes to its field of membership.

It is doubtful that the benefits associated with using the term "bank" in its advertisement would outweigh the cost associated with changing to a federal charter.

VSECU is hoping that the state regulator will believe its threat; but I believe the state regulator should call VSECU's bluff, as it is not credible.


  1. A federal charter would likely widen their field of membership to the entire 'community' vs SEG membership. Federal chartered example --- membership is open to an entity or person who lives, works, worships, or attends school in the #xx chartered counties.

  2. Going to a federal charter would limit its field of membership. It currently has both a multiple SEG and a community charter that includes anyone who lives or works in Vermont.

    As I said, a hybrid charter is not permissible. It cannot do the state of Vermont as a community.

    Anyway you dice it, its FOM would be more limited at the federal level.

  3. What is far more silly than the "threat" of VSECU going to a federal charter is the state regulator of BANKING not allowing a credit union to use the term banking to describe the services it offers.

    Here is an excerpt from the regulator's own web site. Draw your own conclusions about the fact that the division of this department's title is "Vermont Department of Financial Regulation - Banking Division"

    From their own web site:

    "The Vermont Banking Division regulates and examines a variety of entities that include banks, credit unions, lenders, mortgage brokers, sales finance companies, debt adjusters, and money servicers. The Division also provides consumer assistance, education, and outreach to protect consumers from financial fraud."

    Notice that the Banking Division includes banks, credit unions, and other financial services. Then sit back, chuckle, and enjoy the irony.

    ~Morriss M. Partee



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