Credit union executives may want to thank their lucky Red, White and Blue stars that they do business in the USA.
While Americans were enjoying the Fourth of July and all of the great food and fireworks that came with celebrating the nation’s 241st birthday Tuesday, our Canadian credit union colleagues distributed a distress call in the form of a news release. In it, the Canadian Credit Union Association sharply criticized a decision by its federal bank regulator that bans credit unions from using the words “bank,” “banker,” and “banking.”
Advisory 2017-01 issued by the Office of Superintendent of Financial Institutions in Ottawa means Canadian credit unions have until the end of the year to remove these words from their websites and social media sites. By June 30, 2018, credit unions can no longer use the B-words on any print materials and by June 30, 2019, they will no longer be allowed to use the B-words on any signs.
The OSFI advisory will cost credit unions an estimated $80 million (Canadian) dollars, ($61.3 million in U.S. dollars), according to the CCUA.
The advisory takes a strict interpretation of the Canada’s Bank Act and authorizes the federal government to bring criminal charges against any credit union that uses the bank, banker or banking words, according to the CCUA. Contravention of the Canada’s Bank Act is a criminal offense. If convicted, a credit union could face a substantial fine or prison time for its officers and directors.
“Ottawa is telling credit unions to stop using the words Canadians use to describe the work we do,” Martha Durdin, CCUA’s president/CEO, said. “This rule will prevent credit unions from advertising their business banking services or even having an on-line banking button on a website. Having to create and popularize new words is an unnecessary and expensive undertaking, and will make it difficult for credit unions to compete fairly with banks.”
The Canadian Bankers Association, of course, sees it differently, arguing that the word “bank” conveys a mark of security, reliability, and oversight that consumers have come to trust.
“We have always been clear in our view that only institutions that have gone through the rigorous process to gain and sustain the approval by federal regulators to be a Canadian bank should be allowed to call themselves a bank or say that they are providing banking services,” CBA President/ CEO Neil Parmenter said.
Provincially regulated, credit unions have operated in Canada since 1908 and have evolved to provide the same lending, deposit taking and wealth management services as federally chartered banks, the CCUA argues.
What’s more, Canadian credit union have the same – or higher – deposit protection as banks, and operate in 380 communities that are not locally served by Canada’s largest banks. The nation’s 278 credit unions serve more than 5.6 million Canadians and manage $205 billion in assets.
Durdin also contends that the OSFI has taken a position that is inconsistent with its past practices and with common sense.
Canadian credit unions have used the words bank and banking to describe what they do, without penalty, for years albeit with the until now tacit support of federal officials, according to the CCUA.
The OSFI said it issued the advisory because it has observed an increased use of the words bank, banker and banking by non-bank financial service providers.
“OSFI is issuing the advisory to provide clarity regarding its interpretation of the restrictions,” the government agency said in a prepared statement. “The restriction applies to all non-bank financial service providers, including both federal regulated trust and loan companies and provincially regulated institutions (credit unions). They also apply to unregulated financial service providers.”
CCUA is calling on the federal government to reverse OSFI’s advisory, which it could do by amending Canada’s bank law or introducing a regulation to allow credit unions to continue to use the B-words without facing criminal penalties.
The CCUA said there is legislative review of Canada’s Bank Act underway and is waiting for the Minister of Finance Bill Morneau to announce his intention to either introduce a regulation or change the Bank Act in a way that would allow credit unions to continue using the B-words. However, the national trade group also said it assessing legal options as well.
In the U.S., there was a showdown between the $717 million VSECU in Montpelier, Vermont and its state regulator over the use of the word bank in the credit union’s advertising. In 2012, Vermont law prohibited state-chartered credit unions from using the word bank in its marketing materials. The two parties agreed that the credit union would not use the bank word in its ads, but it could use the work banking and similar words as long as it disclosed that it is a credit union.
And in 2014, the Washington Department of Financial Institutions issued a director’s interpretive statement that granted an exemption for state-chartered credit unions to use the words bank, banking and bankers in a manner that will not mislead the public that a credit union has a bank charter.
