CBE’s editors had the opportunity last week to ask senior management at The Fourth Corner Credit Union and their legal counsel several questions in the wake of Fourth Corner’s lawsuit against the Federal Reserve for denying it a “master account,” which would allow it to offer services to state-licensed marijuana businesses in Colorado.
Although recreational marijuana has been legalized in The Centennial State, it is still illegal on the federal level, discouraging most traditional banks from working with pot businesses.
The Fed’s branch in Kansas City, which has been reviewing the application, privately informed the Fourth Corner Credit Union earlier in July that it had not been approved for a master account, the credit union said on Thursday.
Fourth Corner, which has the backing of Colorado’s governor, fired back Thursday night by filing a lawsuit in federal court in Denver against the Fed, demanding “equal access” to the financial system.
Participating in the interview were Deirdra O’Gorman, CEO, and Mark Goldfogel, EVP for Industry Relations, for The Fourth Corner Credit Union in Denver (“TFCCU”). Also in attendance was attorney Mark Mason, who is representing Fourth Corner in their lawsuit against the Federal Reserve Bank (FRB) of Kansas City to gain access to the Federal Reserve payments system. They have also filed a separate lawsuit against the National Credit Union Association (NCUA), an organization that typically provides insurance for credit unions comparable to what the Federal Deposit Insurance Corporation provides for banks.
CBE: Why are you suing the Federal Reserve Bank and the National Credit Union Association?
Mark Mason: From the time we began working on this project in February of 2014, our goal was to build a strong case in favor of a state chartered nonprofit credit union that serves licensed cannabis and hemp business and their supporters gaining access to the federal payments system.The case had to convince Colorado state regulators to grant Fourth Corner a state credit union charter.
State regulators carefully reviewed all aspects of the business plan and granted a state charter. However, the federal government controls two aspects of the banking system: the federal payments system, and, federal deposit insurance. A state chartered depository institution is legally entitled to access to the federal payments system. A credit union is also entitled to federal insurance if its business plan is safe and sound.
When the Federal Reserve Bank of Kansas City and the National Credit Union Administration came to a totally different conclusion than the Colorado Division of Financial Services about The Fourth Corner Credit Union, this presented a direct conflict between state and federal banking law. Fourth Corner has sued the Federal Reserve Bank of Kansas City and the National Credit Union Administration to require that they respect the decision of Colorado to charter a financial institution. The lawsuit seeks to require the Federal Reserve Bank of Kansas City to provide The Fourth Corner Credit Union access to the federal payments system — just like they provide to ALL other depository institutions.
CBE: How hard was it to get a state charter to operate as a credit union?
Deirdra O’Gorman: Many people do not realize just how rigorous the process is with the state in order to be granted a state credit union charter. The State of Colorado did an extensive background investigation on the credit union, the founders, the business plan, the compliance protocols, and thoroughly reviewed our application with lots of back and forth and requests for changes, before ultimately granting us a charter.
The charter grants Fourth Corner the ability to specialize in serving the hemp and cannabis industries while also providing banking for non-cannabis businesses and individuals who are supporters of the social movement. This diversification helps the credit union be financially sound in order to serve the deposit and lending needs of the Fourth Corner membership for years to come.
CBE: Has the Federal Reserve typically denied financial institutions that have been chartered access to the payment system in the past?
Mark Mason: We have not been able to find instances where the Federal Reserve has ever denied a state-chartered depository institution access to a master account to enter the federal payments system. The reason for this is that the Monetary Control Act of 1980 (12 U.S.C. 248a) mandates that the Federal Reserve “shall” provide all depository institutions equal access to the payment system on nondiscriminatory terms.
CBE: Why do you think you have been denied?
Mark Goldfogel: Change at the federal level does not come quickly or easily. Thus, it is fitting that a federal judge decide whether, as a matter of law, a state chartered credit union is entitled to access to the federal payments system under the Monetary Control Act of 1980.
CBE: Why are you doing this?
Deirdra O’Gorman: There is a real health and human safety risk associated with millions of dollars being forced into an unbanked and unregulated environment. Forcing an industry to operate entirely in cash creates an environment for tax evasion and significant additional costs associated with safety, security and accountability.
Sadly, it is only a matter of time before someone is killed protecting or transporting cash for state legal and licensed businesses. Because of this political quagmire, the industry finds itself in a situation where innocent, law abiding, tax paying citizens are forced to put themselves and their employees in jeopardy.
Also, under the Dual Banking System, financial institutions that have been granted a state charter and are subject to state oversight should be provided the opportunity to be part of the national payment system. Without access to the Federal Reserve system, the credit union would basically be a vaulting service and that does not solve the banking problem for these cash-based industries.
CBE: Do you really think you will win by suing the government?
Mark Mason: I have been practicing law for 30 years. I believe in our judicial system. The federal bench has brilliant judges that only care about following the law. In this case, the Monetary Control Act of 1980 says the Federal Reserve “shall” provide all depository institutions with equal access to the federal payments system. In the law, the word “shall” means must. It also means that the exercise of discretion is not involved in the issuance of a master account. Therefore, based on the law, we believe this is a very strong case that should be summarily decided in favor of The Fourth Corner Credit Union.
CBE: Is there anything you want the industry to understand about the credit union?
Mark Goldfogel: Fourth Corner believes this suit is also about state’s rights, personal liberty, quality of life and wellness — all concepts that drive our team’s efforts to win this case. The Fourth Corner Credit Union is fighting on behalf of this entire industry. If successful, it is hopeful that the industry recognizes the value of a non-profit credit union that is designed from the ground up to meet the unique compliance requirements in order to adhere to the federal guidance.
Fourth Corner will be the industry’s credit union. It is the credit union’s mission to help the industry thrive by giving it access to traditional banking services.
CBE: What is “Plan B” for Fourth Corner, and the Cannabis Industry, if your lawsuit fails? Where do you go next?
Deirdra O’Gorman: We wouldn’t have gotten this far along in this project if we believed failure is an option. This public safety issue needs to be solved and no matter what happens, Fourth Corner Credit Union will continue to be a champion and advocate for this industry.
CBE: Are their other things that Fourth Corner can do to attain insurance and operate without approval from the Feds?
Deirdra O’Gorman: Fourth Corner can present private deposit insurance options to the State of Colorado for their consideration now that our application has been formally denied by the NCUA. However, without the Federal Reserve Master Account or an approved correspondent relationship, the credit union would not have access to the payments system. Not having access to the payments system would relegate the credit union to being a large vault instead of a fulling functioning financial institution that could help the industry.
CBE: Thank all of you for sharing your insights and thoughts with CBE’s readers. We hope that your lawsuit gets fast tracked and put before a forward-thinking federal judge as soon as humanly possible.