“Bank” as a verb to generally refer to provision of financial services is permissible for a credit union to use in its advertising, and federal law supersedes state statutes that would block the use of the word by the financial cooperatives, the federal credit union regulator has opined.
However, use of “bank” as a noun to refer to a credit union is not permissible in Wisconsin, the agency stated in a letter.
In its May 11 opinion letter, the National Credit Union Administration’s Office of General Council (NCUA OGC) stated that use of the word “bank” by a credit union as a verb – as well as “derivative terms” such as “banking,” “mobile banking,” or “online banking – to generally refer to the provision of financial services is permitted under the Federal Credit Union (FCU) Act. “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,’” the agency’s OGC said in its letter.
But that view does not extend to the use of the word “bank” as a description for a credit union, at least in Wisconsin, which is where the issue arose. “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 a ‘banking organization,’” the agency’s legal office stated.
The Wisconsin Credit Union League (a local trade association) asked the agency for its opinion about whether the FCU Act and the agency’s advertising rules preempted two Wisconsin statutes. The first statute, under the Wisconsin Banking Law, prohibits any person not subject to supervision by the state regulator (the Wisconsin Division of Banking) from referring to itself as a “bank” or otherwise indicating that it is engaged in the business of banking. The second statute, the Wisconsin Deceptive Trade Practices Act (DTPA), according to the letter writer, “prohibits any person, firm, corporation, or association, or any agent or employee of the same from making untrue, deceptive, or misleading advertisements.”
In its letter, the agency pointed to its advertising rules, which it said establish certain minimum federal requirements regarding the accuracy of advertisements and any other representations made by federally insured credit unions
“The NCUA applied this rule to all federally insured, state-chartered credit unions, not just federally chartered credit unions, because of the direct ‘connection between accurate advertising and Congress’ goal of sound and stable operations’ of federally insured credit unions. Furthermore, because the term ‘bank,’ when used as a verb, has become a generic term synonymous with the provision of financial services, the NCUA’s advertising rule permits credit unions to use the word ‘bank’ as a verb to generally refer to the fact that credit unions provide financial services.” The letter adds that includes the “derivative terms” as well.
The NCUA letter states that the Wisconsin Banking Law and the state’s DTPA, “as interpreted by relevant regulatory authorities in the State of Wisconsin,” stand in direct conflict with the federal agency’s interpretation of its advertising rule and stand as obstacles to the accomplishment of important federal objectives set out in the FCU Act.
“Accordingly, we believe that the FCU Act and the NCUA’s advertising rule preempt these state laws with respect to a federally insured credit union’s use of the term ‘bank,’ as a verb, or derivative terms to refer generally to the provision of financial services,” the letter states.
But the letter also specifically notes that its advertising rule does not permit credit unions to use the word “bank” as a noun. “It would be inaccurate and deceptive for a credit union to represent itself as a bank,” the opinion letter states. “It would be equally inaccurate and deceptive for a bank to represent itself as a credit union. Nevertheless, in a generic way and using common parlance, both kinds of institutions provide banking services,” the NCUA letter states.