The Fed's War on Drugs, Round Two

Kansas City Fed, marijuana credit union, TFCCU, Fourth Corner Credit Union, Spirits of Industry and Commerce
The Spirits of Industry and Commerce, by Tuck Langland. Image courtesy of Tuck Langland. (
The Spirits of Industry and Commerce, by Tuck Langland. Image courtesy of Tuck Langland.

Back in August I wrote here about the Federal Reserve Bank of Kansas City's refusal to grant a master account, and to thereby allow access to the Fed's payment facilities,  to The Fourth Corner Credit Union (TFCCU), a Colorado-based credit union intended to serve as a banker to that state's marijuana-related businesses.  In response TFCCU sued the Kansas City Fed, primarily on the grounds that its refusal was contrary to the 1980 Depository Institutions Deregulation and Monetary Control Act (DIDMCA) requirement 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."

A month ago, on September 10, 2015, the Kansas City Fed filed a motion to dismiss, offering, among other grounds, the claim that the above-mentioned DIDMCA statute "pertain's only to the 'principles' for setting a 'schedule of fees'," and that it therefore "does not mandate that FRB-KC grant any entity — let alone TFCCU — a master account."  In other words, according to the Fed's lawyers, it is illegal for the Kansas City Fed to charge TFCCU more for its services than it charges to other applicants so long as the charge in question is finite, but it is legal for them to refuse the service altogether, that is, to make the charge for it infinite!

According to TFCCU's own, less twisted reading of the law, as expressed in its counter motion, Congress never intended to delegate to either the Kansas City Fed or to any other Federal Reserve Bank "unbridled discretion to act as gatekeeper of the nation's central bank," and the Kansas City Fed is therefore duty-bound to "respect state sovereignty under the Tenth Amendment by not acting to nullify state charters."

In drawing my attention to the FRB-KC's motion to dismiss, Mark Mason, TFCCU's counsel, points out that, when that motion doesn't rest upon a contorted interpretation of Federal law, it is "hypocritical and illogical":

It is hypocritical and illogical that FRB-KC would argue in its motion to dismiss that "other financial institutions [are] providing banking services to marijuana-related entities" using Reserve Bank master accounts, but that TFCCU cannot do so on the same terms because TFCCU proposes to do so expressly.  …

FRB-KC's argument is illogical because the only way a financial institution can legally serve an MRB [Marijuana-Related Business] is expressly, as [according to FinCEN guidelines] it has to file Marijuana Limited SARs [Suspicious Activities Reports] for every MRB account.  It appears FRB-KC wants to punish TFCCU for being open and transparent about an aspect of its business plan, while at the same time allowing Reserve Bank services to be used to serve MRB's–so long as the use is covert, not express.

Last week, TFCCU followed-up on its counter-motion by moving for a summary judgment on the claims made in its original complaint.  According to that motion's "Statement of Undisputed Facts,"

Colorado is a sovereign state.  Colorado issued a credit union charter to TFCCU.  TFCCU, by virtue of its charter, is a depository institution.  TFCCU requested that FRB-KC issue a master account to TFCCU so it could thereby access essential Federal Reserve Bank (“FRB”) payments services.  FRB payments services give a depository institution the ability to effectuate the electronic transfer of funds.  FRB-KC refused to provide payments services to TFCCU.  TFCCU asserts FRB-KC is mandated by a clear statutory command to provide all depository institutions with access to FRB payment services pursuant to the MCA, 12 U.S.C. §248a.  This is a case of statutory construction.

In further correspondence Mason adds:

It is an important point that Fourth Corner represents a social movement grounded in state's rights, liberty and wellness.  It's potential membership extends to supporters of the movement and to the licensed marijuana industry as federal law evolves in that aspect.  In the case against FRB-KC the issue is equal access.

The main entrance to the Kansas City Fed's recently-built Memorial Drive headquarters is flanked by twelve-foot high bronze statues representing the Spirits of Industry and Commerce.  Alas, in view of what the Kansas City Fed has been up to, one can only wonder whether those great goddesses are standing out there because it has refused to let them in.