Credit Unions Can Bank Hemp Businesses, Federal Agency Announces
A federal financial agency released updated guidelines on banking in the hemp industry on Monday, following up on requests from multiple lawmakers to provide clarity on the issue.
The National Credit Union Administration (NCUA) said in its interim guidance that providing banking services to hemp businesses is allowable since the crop and its derivatives were federally legalized under the 2018 Farm Bill. The notice also emphasized the economic potential of hemp and the role credit unions can play as the industry continues to develop.
“Lawful hemp businesses provide exciting new opportunities for rural communities,” NCUA Chairman Rodney Hood said in a press release. “I believe today’s interim guidance keeps with the mission of the nation’s cooperative credit system to serve people who have been overlooked and underserved.”
“Many credit unions have a long and successful history of providing services to the agriculture sector,” he said. “My expectation is that credit unions will thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership.”
Growth in hemp-related commerce will create a need for capital & financial services. Interim guidance gives #creditunions the ability to step in & provide hemp-related businesses these customary financial services. Learn more: https://t.co/otTzUt3tL7
— The NCUA (@TheNCUA) August 19, 2019
#creditunions will be able to provide the customary range of financial services for business accounts, including loans, to hemp businesses within their fields of membership https://t.co/5xVnkF3C3E.
— The NCUA (@TheNCUA) August 19, 2019
In a letter sent to Sen. Michael Bennet (D-CO) last month, which the presidential candidate’s Senate office shared exclusively with Marijuana Moment, Hood noted that NCUA was “working on possible future guidance to financial institutions” but that such guidance would be subject to change depending on what regulations the U.S. Department of Agriculture (USDA) ultimately develops.
In the meantime, the new interim guidance notes that “growth in hemp-related commerce could provide new economic opportunities for some communities, and will create a need for such businesses to be able to access capital and financial services” while clarifying that credit unions “may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp related businesses within their fields of membership.”
While NCUA said that it is “generally a credit union’s business decision as to the types of permissible services and accounts to offer,” it highlighted the need to comply with the Bank Secrecy Act (BSA) and with Anti-Money Laundering (AML) requirements, in particular:
—Credit unions need to maintain appropriate due diligence procedures for hemp-related accounts and comply with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity. It is the NCUA’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business. Credit unions need to remain alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
—If a credit union serves hemp-related businesses lawfully operating under the 2014 Farm Bill pilot provisions, it is essential the credit union knows the state’s laws, regulations, and agreements under which each member that is a hemp-related business operates. For example, a credit union needs to know how to verify the member is part of the pilot program. Credit unions also need to know how to adapt their ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
—When deciding whether to serve hemp-related businesses that may already be able to operate lawfully–those not dependent on the forthcoming USDA regulations and guidelines for hemp production–the credit union needs to first be familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity. For example, a credit union needs to know if the business and the product(s) is lawful under federal and state law, and any relevant restrictions or requirements under which the business must operate.
“Hemp provides new opportunities for communities with an economic base involving agriculture,” the notice states. “The NCUA encourages credit unions to thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership.”
“Lending to a lawfully operating hemp-related business is permissible.”
After USDA releases its rules for the hemp industry, which are expected to come ahead of the 2020 planting season, NCUA said it “will issue additional guidance on this subject.”
Senate Majority Leader Mitch McConnell, who like Bennet has also pressured federal regulators to clear up confusion around hemp banking, took credit for NCUA’s response and celebrated the new guidance.
At @senatemajldr’s request, @TheNCUA issues guidance to assist legal #hemp industry. Hearing concerns from his constituents, McConnell urged NCUA to provide clarification to help address this barrier in #Kentucky. @KYCreditUnions applauds the positive news https://t.co/5kaQmxJE1x
— Senator McConnell Press (@McConnellPress) August 19, 2019
“I’m delighted to hear the NCUA has answered my call on behalf of Kentuckians to ensure the legal hemp industry can access much-needed financial services,” McConnell said in a press release. “Although President Trump signed into law my initiative last year to remove hemp from the federal list of controlled substances, many of my constituents have told me about their difficulty receiving loans and other services that are necessary to successfully run a hemp business.”
“Through this guidance by the NCUA, I look forward to more hemp farmers, processors and manufacturers starting or growing their operations with the help of Kentucky’s credit unions,” he said. “As Senate Majority Leader, I’ll continue advocating for Kentucky’s priorities throughout the federal government, and I’m proud of today’s positive news.”
Credit unions have generally been friendlier to the marijuana and hemp industries than have conventional banks, and NCUA has similarly taken a more proactive role in evolving to meet the demands of these burgeoning markets.
For example, the agency’s head clarified earlier this month that credit unions wouldn’t be punished simply for serving hemp businesses so long as they were following standard procedures. NCUA also released a draft rule in July that would allow people with past drug convictions to work at credit unions.
Cannabis banking issues have received significant congressional attention this session, with a bipartisan consensus emerging around creating a legislative fix so that hemp and marijuana businesses are able to access financial services.
The hemp industry in particular has enjoyed bipartisan support since the crop was legalized, but while marijuana remains a federally controlled substance, more lawmakers from across the aisle are expressing interest in affording cannabis businesses the same access in order to increase financial transparency and mitigate public safety risks associated with operating on a largely cash-only basis.
The House Financial Services Committee approved a bill in March that would protect banks that service marijuana businesses from being penalized by federal regulators, and the Senate Banking Committee also held a hearing on the issue last month.
Banking Chairman Mike Crapo (I-ID), who suggested earlier this year that his panel wouldn’t convene to discuss the matter as long as cannabis is federally illegal, has since taken a stance that the issue needs to be resolved.
But while advocates hoped that legislation to address marijuana banking problems would be taken up by the full House ahead of the August recess, that window closed and attention is now turned to a potential hearing in the fall.
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Photo courtesy of Brendan Cleak.