B2B Payments

Fed Sued For Anti-Marijuana Ruling

Last month, PYMNTS reported on the plight of several congressmen as they worked to provide safeguards for banks that are looking to provide financial services to legitimate, legal marijuana businesses.

A bipartisan bill was introduced in the Senate that would prohibit federal regulators from discouraging or reprimanding a bank from providing services to marijuana businesses in states where such businesses are legal. Proponents of the legislation say it would provide the necessary access to financial services that, when left unfulfilled, force small business owners to rely on cash and risky methods to run their companies.

Weeks after the bill was introduced, Senators passed the so-called Merkley Amendment, a financial services appropriations bill that compliments the bipartisan proposal and includes similar language to protect banks looking to serve marijuana businesses.

It would seem that legislators are on the fast track to ensuring that the last of the nation’s unbanked small businesses finally get the financial services they need.

But last week, The New York Times reported on a recent decision by the Federal Reserve that suggests the U.S. federal government isn’t entirely on board with marijuana banking.


According to reports, Denver-based Fourth Corner Credit Union received a quiet rejection by the Fed last month for its application of a “master account,” a request that would have allowed the credit union to operate with other banks and provide financial services to marijuana businesses in Colorado, where such operations are legal.

But Fourth Corner Credit Union, which revealed its rejection from the Fed on Thursday (July 30), isn’t taking the matter lightly. Reports said the credit union has filed a lawsuit in Denver federal court against the Fed on claims that the application rejection prevents the credit union from obtaining “equal access” to the nation’s financial system.

Colorado has the credit union’s back. It was the world’s first financial institution to be approved to provide banking services for the marijuana business when the Colorado Division of Financial Services cleared the way for the union to operate. Governor John Hickenlooper has publicly backed Fourth Corner, and state officials have been outspoken about the need for marijuana businesses to access bank services. It’s a matter of public safety, they say, as an all-cash business is just asking for trouble, from robbery to money laundering. Colorado approved of the credit union’s state license last year, reports said, though officials still required additional approval from the Fed.

But the application was a long-shot from the start. Reports said that before the Fed formally rejected the credit union, the National Credit Union Administration rejected Fourth Corner Credit Union’s application for credit union deposit insurance because it could not prove how it would “mitigate the risk associated with serving a single industry that does not have an established track record of success and remains illegal at the federal level,” reports said.

"I felt all along like they were trying to figure out a way to deny our application,” said Mark Mason, who heads the credit union, to NYT when reflecting on his reaction to the rejections.

Mason has reportedly filed a separate suit against the National Credit Union Administration as well.

An Uphill Battle

Andrew Freedman, who heads Colorado’s marijuana coordination efforts, told NYT that he was disappointed by the Fed’s decision. “We thought it was a good solution to the problem,” he told the publication. “Here was a place willing to take on the risk of banking this underbanked group — and that could do rigorous compliance."

Reports said that the lawsuit could lead the courts to progress towards a resolution between legal marijuana businesses and federal banking regulators. But according to one legal expert, Legal Studies Professor at the University of Pennsylvania’s Wharton School Peter Conti-Brown, it will be a difficult task. “Most of the cards are in the Fed’s hand,” he told NYT.

“They are going to face the longest of odds until there is a clear and permanent change to federal policy,” he added.

Even so, Mason told reporters that he will be fighting to obtain the equality he says he was denied. Reports said the lawsuit argues that, under the Fed’s own regulations, the agency does not have the ability to pick and choose who should be granted a master account.

“We weren’t treated fairly,” he told reporters. “We weren’t treated according to procedure.”


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