Three Minnesota credit unions have filed a lawsuit against the state’s banking regulator in an attempt to override the agency’s refusal to approve credit union-bank deals.
The lawsuit, filed in Ramsey County District Court on Sept. 20 by Magnifi Financial Credit Union, Royal Credit Union and Wings Financial Credit Union, claims that the Minnesota Department of Commerce and Commissioner Grace Arnold, erred when they rejected an application by Lake Area Bank to sell to Royal.
The Minnesota Credit Union Network also signed onto the lawsuit.
Royal agreed in August 2021 to buy Lake Area, which is based in Lindstrom, Minn. The parties restructured the deal after the rejection to apply to some of the bank’s branches and its business banking and mortgage operations.
Lake Area sold its charter and some branches to Ameri Financial Group.
The credit unions disagree with the regulator’s determination that state law bars credit unions from buying the assets and liabilities of state-chartered banks. The lawsuit points to the agency’s decision to approve Royal’s 2016 acquisition of Capital Bank.
Magnifi disclosed in the lawsuit that it backed off talks to buy a bank following the rejection of the Royal-Lake Area deal. Wings Financial said it, too, had held off of deals because of regulatory uncertainty.
Minnesota is one of several states that have blocked credit union-bank deals, either by agency decisions or legislation. Others include Colorado, Iowa, Mississippi and Nebraska. A judge in Tennessee recently overturned an effort by that state’s bank regulator to prevent a deal from happening.