Credit unions are pushing back on the Minnesota financial regulator's decision to bar them from acquiring state-chartered banks.
Eau Claire, Wis.-based Royal CU, Melrose, Minn.-based Magnifi Financial Credit Union and Apple Valley, Minn.-based Wings Financial CU, along with the Minnesota Credit Union Network, on Sept. 20 filed a lawsuit against the Minnesota Department of Commerce and its Commissioner Grace Arnold, claiming the regulatory agency incorrectly interpreted Minnesota state law when it denied Lake Area Bank permission to sell to Royal CU.
The credit unions claim the decision has invited regulatory confusion and created a "chilling effect" on state-chartered bank acquisitions by credit unions.
After the regulatory agency struck down the Lake Area Bank transaction in April, Royal CU and the bank restructured the transaction so that the credit union acquired certain branches and the bank's business banking and mortgage division. Lake Area Bank sold its charter to another bank.
The credit unions and trade group claim that the state regulator "inconsistently and incorrectly interpreted and applied Minnesota law, claiming that state law permits credit unions to purchase the assets and liabilities of federal banks but prevents credit unions from purchasing the assets and liabilities of state banks."
Instead, Minnesota credit union and bank parity laws do allow state-charted banks to sell to credit unions, the lawsuit argues. The lawsuit also pointed out that the Minnesota Department of Commerce approved Royal CU's acquisition of Minnesota-based and chartered Capital Bank in 2016.
The state regulator's decision in Royal CU's more recent bank transaction "has created a roadblock for such transactions and regulatory confusion and upheaval," the lawsuit claims.
According to the lawsuit, Royal CU, Magnifi Financial CU and Wings Financial CU would like to engage in transactions to acquire Minnesota-chartered banks in the future. At one point, Magnifi Financial CU was in the middle of negotiating a transaction, but it withdrew "because of concern that the Department would block the transaction," the lawsuit read.
Wings Financial CU acquired Brainerd Savings and Loan Association A Federal Association, a Minnesota-based bank, in June 2021 without roadblocks from the Minnesota state regulator since the bank target was federally chartered. The credit union has sought deal discussions with Minnesota-chartered banks, but in one instance, a bank ceased discussions due to regulatory uncertainty, according to the lawsuit.
The credit unions are represented by former Minnesota attorney general Lori Swanson with Swanson Hatch PA and Gabriel Bedoya and Laura Biery with Honigman LLP.
A handful of states have sought to stifle credit union acquisitions of banks. Currently, Colorado, Iowa, Mississippi, Nebraska and Minnesota have barred these transactions either through the state's regulatory agency blocking a transaction or through legislation.