Vice President of Legal & Compliance
The Wisconsin Credit Union League
N25 W23131 Paul Road
Pewaukee, WI 53072-5779
RE: Preemption of Wisconsin Law Restricting Advertising and Use of the Word “Bank”
Dear Mr. Guttormsson:
You have asked if the Federal Credit Union Act (FCU Act)1 and the NCUA’s advertising rule, § 740.2,2 preempt two Wisconsin statutes. The first statute, a provision of the Wisconsin Banking Law, prohibits any person who is not subject to supervision and examination by the Wisconsin Division of Banking from referring to itself as a “bank” or otherwise indicating that it is engaged in the business of banking.3 The second statute, the Wisconsin Deceptive Trade Practices Act (DTPA), prohibits any person, firm, corporation, or association, or any agent or employee of the same from making untrue, deceptive, or misleading advertisements.4
For the reasons set out below, we believe that these two statutes are preempted with respect to a federally insured credit union’s use of the word “bank” as a verb to generally refer to the provision of financial services. This includes derivative terms such as “banking,” “mobile banking,” or “online banking.” 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.” 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 Supremacy Clause of the U.S. Constitution provides that the laws of the United States “shall be the supreme law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any state to the Contrary notwithstanding.”5 Accordingly, where Congress has “unmistakably…ordained”6 that “its enactments alone are to regulate a part of commerce, state laws regulating that aspect of commerce must fall. This result is compelled whether Congress’ command is explicitly stated in the statute’s language or implicitly contained in its structure and purpose.”7
A federal law that does not expressly preempt a state law may nevertheless implicitly preempt a state law where there is a clear and manifest Congressional intent to supersede the historic police powers of the States.8 Evidence of such an intent is typically found where the federal regulatory scheme is so pervasive as to “occupy the field” leaving no room for supplementary state regulation9 or where there is an “irreconcilable conflict” between the federal and state laws.10 Unlike in other areas of law, the traditional assumption against preemption does not apply in the context of the regulation of financial services because of the long history of significant federal presence in this area.11
Federal law “occupies the field,” and thus preempts state law, where “the scheme of federal regulation is sufficiently comprehensive to make reasonable the inference that Congress ‘left no room’ for supplementary state regulation” or where “the field is one in which ‘the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject.”12 In such cases, “even complementary state regulation is impermissible” because “[f]ield preemption reflects a congressional decision to foreclose any state regulation in the area, even if it is parallel to federal standards.”13
In contrast, federal law “irreconcilably conflicts” with a state law where compliance with both the federal law and the state law may be a “physical impossibility” or where the state law stands “as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”14 What amounts to a “sufficient obstacle is a matter of judgment, to be informed by examining the federal statute as a whole and identifying its purpose and intended effects”15 including a detailed analysis of the “relationship between the state and federal laws as they are interpreted and applied, not merely as they are written.”16 The conflict between the federal law and the state law must typically be a “sharp” one.17 In other words, the conflict must be “so direct and positive that the two acts cannot be reconciled or consistently stand together.”18
A federal regulation adopted by a federal agency has the force of law and may also preempt a conflicting state law.19 A regulation’s preemptive force does not “depend on express congressional authorization to displace state law; moreover, whether the [agency] failed to exercise an option to promulgate regulations which did not disturb state law is not dispositive.”20 Rather, when a federal agency adopts a regulation intended to preempt state law, judicial review is limited to determining whether “it appears from the statute or its legislative history that the [reasonable accommodation of conflicting policies] is not one that Congress would have sanctioned.”21 In other words, the regulation will be given preemptive effect unless it is “unreasonable, unauthorized, or inconsistent with” the underlying statute.22
Federal Regulation of Credit Union Advertising
The FCU Act sets out a complex federal regulatory program for the chartering of federal credit unions and the supervision of all federally insured credit unions, including federally insured, state-chartered credit unions.23 As the chartering authority for federal credit unions, the NCUA has exclusive (relative to the States) visitorial power over federal credit unions.24 This authority is similar in several respects to the authority exercised by the U.S. Office of the Comptroller of the Currency with respect to national banks and federal savings associations.25 As the federal supervisory authority for all federally insured credit unions, the NCUA shares visitorial power over federally insured, state-chartered credit unions with the appropriate state supervisory authority.26 This authority is similar in several respects to the authority exercised by the Board of Governors of the Federal Reserve System with respect to state-chartered banks that are members of the Federal Reserve System and the Federal Deposit Insurance Corporation with respect to state-chartered nonmember banks.27
As the primary federal supervisory authority for federally insured credit unions, the NCUA has a statutory responsibility to ensure the safety and soundness of each federally insured credit union and to minimize risks to the National Credit Union Share Insurance Fund, a revolving fund created within the U.S. Treasury to insure member accounts.28 To accomplish these dual statutory obligations, the NCUA has plenary rulemaking authority under the FCU Act to adopt “such rules and regulations as it may deem necessary or appropriate.”29
The NCUA adopted its advertising rule, § 740.2, as an exercise of this plenary regulatory authority. The rule reads as follows:
No insured credit union may use any advertising (which includes print, electronic, or broadcast media, displays and signs, stationery, and other promotional material) or make any representation which is inaccurate or deceptive in any particular, or which in any way misrepresents its services, contracts, or financial condition, or which violates the requirements of § 707.8 of this subchapter, if applicable. This provision does not prohibit an insured credit union from using a trade name or a name other than its official charter name in advertising or signage, so long as it uses its official charter name in communications with NCUA and for share certificates or certificates of deposit, signature cards, loan agreements, account statements, checks, drafts and other legal documents.
The purpose of the NCUA’s advertising rule is to establish certain minimum federal requirements regarding the accuracy of advertisements and any other representations made by federally insured credit unions.30 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.31 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. This includes derivative terms such as “banking,” “mobile banking,” or “online banking.”32 The NCUA’s advertising rule, however, does not permit credit unions to use the word “bank” as a noun as it would be inaccurate and deceptive for a credit union to represent itself as a bank. 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.
Wisconsin Banking Law
We believe that the FCU Act and the NCUA’s advertising rule preempt the Wisconsin Banking Law to the extent that it prohibits a federally insured credit union from using the word “bank” or derivative terms to generally refer to the provision of financial services. The relevant provision of the Wisconsin Banking Law reads as follows:
Use of “bank". Except as provided in sub. (2), a person who is engaged in business in this state, who is not subject to supervision and examination by the division, and who is not required to make reports to the division under this chapter, may not use the term “bank", in any form upon any office sign at the place where the business is transacted. Except as provided in sub. (2), the person may not use or circulate letterheads, billheads, blank notes, blank receipts, certificates, circulars, or any written or printed or partly written and partly printed paper, containing an artificial or corporate name, or other words, that indicates that the person's business is the business of a bank.33
While we do not believe that the use of the word “bank” or derivative terms to generally refer to the provision of financial services indicates that a federally insured credit union’s “business is the business of a bank,” we understand that the Wisconsin Division of Banking has taken the position that such a use would violate the Wisconsin Banking Law and is interpreting the state law broadly.34 Accordingly, the Wisconsin Banking Law irreconcilably conflicts with the NCUA’s interpretation of its advertising rule as applied under these circumstances.
The Wisconsin Banking Law also stands as an obstacle to the accomplishment and execution of the full purposes of the FCU Act. Congress charged the NCUA with the responsibility for ensuring the safety and soundness of all federally insured credit unions. The connection between a federally insured credit union successfully marketing itself through advertisements and the safe and sound operation of that credit union is obvious. The use of generic terms such as “bank,” as a verb, or “banking” which are widely accepted by consumers to refer to the provision of financial services allows a federally insured credit union to effectively compete with other insured depository institutions in the market for consumer financial services. We believe this can be accomplished without confusing consumers. Prohibiting federally insured credit unions from using these terms inhibits their ability to compete and, thus, jeopardizes their safety and soundness.
Moreover, the use of such terms by federally insured, state-chartered credit unions is particularly important because it allows those institutions to compete on a level playing field with federal credit unions which are generally unburdened by such state laws. This not only ensures that federally insured, state-chartered credit unions are able to operate in a safe and sound manner but also supports the dual-chartering system which Congress explicitly sought to protect when enacting the federal share insurance provisions of the FCU Act. Section 211 of the FCU Act explicitly states that it is Congress’ policy “to provide all credit unions with the same opportunity to obtain and enjoy the benefits of” the federal share insurance provisions of the FCU Act (including the NCUA’s advertising rule promulgated thereunder).35 Accordingly, to the extent that the Wisconsin Banking Law stands as an obstacle to these important federal objectives, the state law is “without effect” and necessarily must give way to the FCU Act.36
While we believe that the Wisconsin Banking Law is preempted by the FCU Act and the NCUA’s advertising rule, in this particular instance, given the generally accepted use of “bank,” as a verb, or derivative terms to refer to the provision of financial services, we note that we do not believe that the Wisconsin law is preempted in all instances.37 For example, a federally insured credit union may not represent itself as a “bank” or a “banking organization” because a credit union is not a bank. A credit union is a nonprofit financial cooperative that may share some features with a bank, such as the provision of financial services, but there are several key distinctions between a credit union and a bank such that a credit union using the term “bank” or “banking organization” to refer to itself would be inappropriate unless specifically authorized under state law.
Wisconsin Deceptive Trade Practices Act
We believe that the FCU Act and the NCUA’s advertising rule also preempt the DTPA to the extent that it prohibits a federally insured credit union from using the word “bank,” as a verb, or derivative terms to generally refer to the provision of financial services. The relevant provision of the DTPA reads as follows:
No person, firm, corporation or association, or agent or employee thereof, with intent to sell, distribute, increase the consumption of or in any wise dispose of any real estate, merchandise, securities, employment, service, or anything offered by such person, firm, corporation or association, or agent or employee thereof, directly or indirectly, to the public for sale, hire, use or other distribution, or with intent to induce the public in any manner to enter into any contract or obligation relating to the purchase, sale, hire, use or lease of any real estate, merchandise, securities, employment or service, shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in this state, in a newspaper, magazine or other publication, or in the form of a book, notice, handbill, poster, bill, circular, pamphlet, letter, sign, placard, card, label, or over any radio or television station, or in any other way similar or dissimilar to the foregoing, an advertisement, announcement, statement or representation of any kind to the public relating to such purchase, sale, hire, use or lease of such real estate, merchandise, securities, service or employment or to the terms or conditions thereof, which advertisement, announcement, statement or representation contains any assertion, representation or statement of fact which is untrue, deceptive or misleading.38
While we do not believe that the use of the word “bank,” as a verb, or derivative terms to generally refer to the provision of financial services is a deceptive trade practice within the meaning of the DTPA, we understand that the Wisconsin Department of Financial Institutions, which includes the Division of Banking and the Office of Credit Unions, has taken the position that such a use would violate the DTPA. Accordingly, the DTPA irreconcilably conflicts with the NCUA’s interpretation of its advertising rule as applied under these circumstances. For the reasons set out above, the DTPA also stands as an obstacle to the accomplishment and execution of the full purposes of the FCU Act under these circumstances. Accordingly, the FCU Act and the NCUA’s advertising rule preempt the DTPA to the extent that it prohibits a federally insured credit union from using the word “bank,” as a verb or derivative terms to generally refer to the provision of financial services.
Similar to our determination regarding the Wisconsin Banking Law, we also note that our determination regarding the DTPA is limited to the specific facts presented to us. The DTPA is a consumer protection statute of general applicability. Federal courts have repeatedly held that fraud, misrepresentation, or deception claims brought under general consumer protection statutes are not preempted unless they directly conflict with federal statutes and only to the extent of the purported conflict.39
As stated above, the Wisconsin Banking Law and the DTPA, as interpreted by relevant regulatory authorities in the State of Wisconsin, stand in direct conflict with the NCUA’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.
Michael J. McKenna
cc: Wisconsin Department of Financial Institutions
1 12 U.S.C. § 1751 et seq.
2 12 C.F.R. § 740.2.
3 Wis. Stats. § 221.0402(1).
4 Wis. Stats. § 100.18(1).
5 U.S. CONST. art. VI, cl. 2.
6 Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142 (1963).
7 Jones v. Rath Packing Co., 430 U. S. 519, 525 (1977).
8 Id. at 523.
9 Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).
10 Hines v. Davidowitz, 312 U.S. 52, 66-7 (1941).
11 U.S. v. Locke, 529 U.S. 89, 108 (2000); Wells Fargo Bank, N.A. v. Boutris, 419 F.3d 949, 956 (9th Cir. 2005).
12 Hillsborough County, Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 713 (1985).
13 Arizona v. United States, 567 U.S. 387, 401 (2012) (citing Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 249 (1984)).
14 Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 31 (1996).
15 Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363, 373 (2000).
16 Jones, 430 U.S. at 524.
17 Boyle v. United Tech. Corp., 487 U.S. 500, 507 (1988).
18 Jones, 430 U.S. at 544
19 Wyeth v. Levine, 555 U.S. 555, 574-5 (2009) (“[t]his Court has recognized that an agency regulation with the force of law can pre-empt conflicting state requirements.”).
20 Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 154 (1982) (citing United States v. Shimer, 367 U.S. 374, 381-82 (1961)); see also Nat’l Fed. of the Blind v. United Airlines, Inc., 813 F.3d 718, 734 (9th Cir. 2016); Barzelis v. Flagstar, F.S.B., 784 F.3d 971, 973 (5th Cir. 2015); PPL Energyplus, LLC v. Solomon, 766 F.3d 241, 253 (3rd Cir. 2014); McCauley v. Home Loan Inv. Bank, F.S.B., 710 F.3d 551, 554 (4th Cir. 2013); Casey v. FDIC, 583 F.3d 586, 592 (8th Cir. 2009); SPGGC, LLC v. Blumenthal, 505 F.3d 183, 188 (2d Cir. 2007).
23 NCUA’s authority to charter federal credit unions is contained in Title I of the FCU Act (12 U.S.C. 1752 – 1775), and its various authorities as federal share insurer are contained in Title II of the FCU Act (12 U.S.C. 1781 – 1790e). Title III of the FCU Act (12 U.S.C. 1795 – 1795k) governs the NCUA Board’s responsibilities overseeing the NCUA Central Liquidity Facility, a federal instrumentality that provides liquidity for member credit unions.
24 12 U.S.C. § 1756 (authority to examine federal credit unions); see also Watters v. Wachovia Bank, N.A., 550 U.S. 1, 12 (2007) (OCC visitorial powers over national banks is exclusive with respect to State governments).
25 12 U.S.C. § 161 (authority to examine national banks and federal savings associations).
26 12 U.S.C. § 1784 (authority to examine all federally insured credit unions). Pursuant to the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, some of the NCUA’s supervisory authority with respect to federally insured credit unions with assets over $10 billion (including federal credit unions) was transferred to the Consumer Financial Protection Bureau. See 12 U.S.C. § 5515.
27 12 U.S.C. §§ 325 (authority to examine state-chartered member banks); 1820 (authority to examine state-chartered nonmember banks).
28 12 U.S.C. §§ 1783, 1786.
29 12 U.S.C. § 1789(a)(11).
30 Advertisement of Insured Status, 35 Fed. Reg. 18533 (Dec. 5, 1970) (proposed rule); Advertisement of Insured Status, 36 Fed. Reg. 902-3 (Jan. 20, 1971) (final rule).
31 OGC Op. Ltr. 03-0146 (Mar. 12, 2004) (citing Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 154 (1982)).
33 Wis. Stats. § 221.0402(1).
34 See Wisconsin Department of Financial Institutions, Banking Letter 50: Use of the Word “Bank” under s. 221.0402, Stats. (June 9, 2017) (later withdrawn).
35 12 U.S.C. § 1790.
36 Fed. Home Loan Bank Bd. v. Empie, 778 F.2d 1447, 1454 (10th Cir. 1985) (finding that an Oklahoma law prohibiting certain advertisements was preempted by the Federal Home Loan Bank Board’s interpretation of its advertising regulation)
37 English v. Gen’l Elec. Co., 496 U.S. 72, 79 (1990) (state law is preempted only to the extent that it actually conflicts with federal law).
38 Wis. Stats. § 100.18(1).
39 Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 578 (7th Cir. 2012) (distinguishing conventional state law claims of misrepresentation and breach of contract, which are not preempted, from those that would impose state law requirements contrary to federal regulations which are preempted).