A Legal Setback for the Fed

Twice here, yours truly has reported on The Fourth Corner Credit Union’s attempts to get the Kansas City Fed to grant it a master account, so that it could gain access to the Federal Reserve operated interbank payment and settlement system, and thereby supply ordinary banking services to Colorado’s legal marijuana-related businesses.

Although the 1980 Depository Institutions Deregulation and Monetary Control Act (DIDMCA) requires that “All Federal Reserve bank services…shall be available to nonmember depository institutions and such services shall be priced at the same schedule applicable to member banks,” the Kansas City Fed, after dragging its feet for months, summarily turned down TFCCU’s request in July 2015, on the dubious grounds that the National Credit Union Authority had earlier (and almost certainly at the Fed’s behest) denied TFCCU’s request to take part in its Share Insurance Fund — the credit-union counterpart of FDIC deposit insurance. I say “dubious” in part because TFCCU was planning to secure private insurance coverage, but mainly because insurance coverage had never been considered a requirement for having a Fed master account.

Until now, things have worked out badly for TFCCU. Although it sued the Kansas City Fed, the Fed’s lawyers replied with a motion to dismiss the suit, to which TFCCU’s lawyers responded with a counter motion, along with a request for summary judgement. Alas, TFCCU’s efforts came to naught when U.S. District Judge R. Brooke Jackson sided with the Fed. In his nine-page opinion, Jackson insisted that despite TFCCU’s “attempts to give me comfort that, notwithstanding the oath I took to uphold the laws of the United States, I can grant the relief it seeks,” despite federal justice guidelines issued in February 2014, granting banks in states where marijuana-related businesses were legal a green light to do business with them, subject to specific reporting requirements, and despite TFCCU’s stated intent to obey federal law, his hands were tied by the Controlled Substances Act.

Well, recently TFCCU got some good news at last. In a message he sent me last week, Mark Mason, the credit union’s attorney, wrote

I wanted to share the big win with you — we got Judge Jackson’s order vacated by the 10th Circuit Court of Appeals. Judge Bacharach’s opinion agreed 100 percent with our position [that the F]ed must provide all depository institutions access to the payments system and that it has no discretion in that regard.

Judge Bacharach’s well-argued opinion, which is well-worth reading in full, allows TFCCU to proceed with its suit after all. Though not yet a complete victory for the beleaguered credit union, it’s at least a giant step in that direction.

[Cross-posted from Alt-M.org]