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Federal Judge Urges Settlement of Pot-Banking Case

A federal judge is urging the parties of a closely watched pot-banking case to settle their dispute.

In a court hearing Monday in Denver, U.S. District Judge R. Brooke Jackson recommended that the defendant, the Federal Reserve Bank of Kansas City, and the plaintiff, Fourth Corner Credit Union in Denver, seek a compromise to the complex legal matter, the Los Angeles Times reported.

Fourth Corner, which the state of Colorado granted a charter in November 2014 for the purpose of serving marijuana retailers, applied to the Kansas City Fed for a so-called master account that would give it vital access to U.S. payments system. The application was denied after a nine-month wait, and the credit union then sued the regulator this summer to force it to issue an account. Fourth Corner also sued the National Credit Union Administration, which denied it access to deposit insurance.

Twenty-three states and the District of Columbia have laws legalizing marijuana in some form, including four that allow its recreational use, according to the website Governing. Pot is legal for medical and recreational use in Colorado.

But the U.S. still includes marijuana on its list of illegal drugs, and that is what concerns many financial services executives and some regulators even though federal guidelines were issued in 2014 that permit lenders to serve marijuana businesses if they obey strict rules on oversight and reporting.

The Kansas City Fed opposes letting banks and credit unions serve marijuana-related businesses. Pot-legalization laws like Colorado's "are preempted as in conflict with the federal prohibition," Kansas City Fed attorneys have written in court filings.

In the hearing, Judge Jackson expressed some sympathy with Fourth Corner's stance, describing the federal guidance on pot banking as "nothing-burgers" and "namby-pamby," according to the Times story. But the story said Jackson also expressed reluctance to force the Kansas City Fed to violate federal law.

"Would I be forcing them to give this to someone who will then engage in illegal activity?" he was quoted as asking.

Fourth Corner's chief executive, Deirdra O'Gorman, told American Banker she believes her institution should be granted access to the federal payments system by virtue of its state charter.

"All we are asking for is to be able to play by the same rules that other financial institutions are afforded," she said in an email the day after the hearing.

Kansas City Fed officials declined to comment.

Jackson said he would issue a written decision in the coming days, the Times story said.

Many on both sides of the issue have hoped that Congress would resolve the conflict between federal and state laws. But federal legislation to give marijuana businesses access to the banking system stalled in both the House and Senate, and Congress is not expected to act on the matter until after the 2016 elections.

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