Federal Preemption Extended to FISCUs over Use of Term Bank

The National Credit Union Administration (NCUA) recently expanded the federal preemption to federally-insured state chartered credit unions (FISCUs).

In a May 11 legal opinion letter, NCUA stated that the Federal Credit Union Act (FCUA) and the agency’s advertising regulation preempted two Wisconsin Statutes, which barred state chartered credit unions from using the terms “bank” or “banking” in any form (with limited exceptions).

NCUA wrote that Wisconsin Law conflicted with NCUA's advertising rule.

NCUA contended that "[p]rohibiting federally insured credit unions from using these terms inhibits their ability to compete and, thus, jeopardizes their safety and soundness."

NCUA further stated that this preemption would level the playing field between state chartered credit unions and federal credit unions, which are not burdened by such state laws.

Moreover, NCUA stated that it does not believe the use of the word bank or its derivative as a verb is a deceptive trade practice, despite the Wisconsin Department of Financial Institutions thinking otherwise.

The legal opinion letter, however, stated that a credit union cannot call itself a bank or banking organization.

This legal opinion will allow credit unions in other states to push back on state laws that restrict the use of the term bank or banking in their advertising.

I wonder how the National Association of State Credit Union Supervisors and the states will react to this encroachment by NCUA onto their turf.

Read the letter.