DENVER—The Fourth Corner CU feels it is time someone besides regulators and the Federal Reserve make the call on whether a credit union chartered to serve the marijuana industry can open its doors.
As CUToday.info was the first in the credit union community to report, The Fourth Corner filed suit against NCUA and the Federal Reserve after NCUA turned down the CU for NCUSIF deposit insurance and then the Fed followed by denying TFCCU a master account to access the payments system.
TFCCU CEO Deirdra O’Gorman said the suits are a “last resort,” but the hope is the litigation will help to pry open a dialogue between the credit union and the federal agencies. And if not, an end-game is to get another perspective on a CU serving the pot trade.
O’Gorman emphasized that an “impartial” decision on the situation is needed. “Clearly there needs to be more conversation, and hopefully at least an outsider’s perspective—a federal judge—to level the playing field.”
Chartered In 2014
TFCCU, which received a charter from the state late last year, had hoped to open in January to provide financial services to pot businesses in Colorado. Instead, it had been waiting for approvals from the Federal Reserve and NCUA, which never came.
The Fourth Corner was formed to provide financial services to an underbanked pot industry that relies heavily on cash. Despite marijuana being legal in Colorado, marijuana businesses—as they do nationwide—face great difficulty in accessing the financial services system. Banks and credit unions shy away from serving these organizations, and often close pot company accounts after they are opened because marijuana is still illegal on the federal level. As a result, dangerous amounts of cash remain on the streets, threating not only the lives of the marijuana business owners but those who live in the local communities
O’Gorman believes NCUA’s decision to deny the credit union deposit insurance coverage influenced the Fed’s decision to deny the master account it had been seeking. That master account is needed to facilitate electronic payments. TFCCU’s complaints, filed in U.S. District Court in Denver, claim that the Federal Reserve Bank of Kansas City and NCUA worked together to “unlawfully block TFCCU from the Federal Reserve payments System.”
As for the reason’s NCUA denied insurance coverage, O’Gorman referred CUToday.info to the 78-page complaint against the CU regulator. “There are a number of reasons,” she said.
The complaint alleges that the agency acted “arbitrarily, capriciously, not in accordance with law and abused its discretion” in concluding that:
- “TFCCU is unable to satisfy DOJ, FinCEN and BSA enhanced monitoring requirements.”
- “TFCCU’s business model served a single industry that does not have an established track record and remains illegal at the federal level.”
- “TFCCU did not present adequate evidence of compelling interest and commitment among the members to promote thrift through systematic savings.”
- “TFCCU failed to provide information on the general character and fitness of the credit union’s management.”
The complaint also alleges that NCUA:
- Discriminated against TFCCU, a state chartered credit union, and acted “in favor of federally chartered and federally insured credit unions in violation of 12 U.S.C. §1790.”
- “Failed to follow the provisions of its July 18, 2014 supervisory letter regarding the ability of credit unions to provide services to MRBs in acting on TFCC’s federal share deposit insurance application.”
State, Federal Regulators Compared
O’Gorman compared how the state regulator, then led by Financial Services Commissioner Chris Mykelbust—who has moved on to head the state’s banking division—interacted with The Fourth Corner and how NCUA has worked with TFCCU.
“At the end of the day we felt the information (NCUA) asked of us did not paint a full picture of what we are able to do,” said O’Gorman. “The state went back and forth with us for extraordinarily long amount of time, asking questions, digging into our business plan, asking for changes. There was a healthy dialogue before the state made a decision. We felt that was a thorough process and that the state understood our goals. We felt we did not get that same opportunity with NCUA and the Federal Reserve.”
The complaint alleges that "NCUA does not trust highly qualified state regulators with superior local knowledge, familiarity with a state spawned industry, and their eye on the ball, to properly charter, regulate, supervise and examine TFCCU.”
With NCUA’s decision being final, and with no option for appeal, O’Gorman reiterated that the lawsuits were the only option.
“It’s an unfortunate situation—we could not appeal with NCUA to have more of a dialog about our systems, processes and business plan,” said O’Gorman.
Colorado law does allow a financial institution, if denied federal insurance coverage, to present other insurance options to the state for consideration. O’Gorman said the credit union could consider private insurance, but that would not solve the problem of not gaining access to the Federal Reserve system.
O’Gorman acknowledged that the issues the CU is wrestling with now often come when an organization forges new ground.
“I wish I had a crystal ball, but I have no idea where all this will end up,” she said. “Every day we come into the credit union’s office and we work hard. We have been meticulous about creating our compliance protocols, technology and our strategic partnerships to create an environment where people would feel comfortable to allow the credit union to have share insurance and access to the payments system.”
CUToday.info reached out to NCUA for comment, but the agency declined saying it does not comment on matters involving litigation and supervision.