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Sunday, 22 November 2015 22:22

Bills would streamline regs for credit unions, enable them to offer new business services in Michigan

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Legislation pending in Lansing would update and streamline state regulations over Michigan credit unions and potentially enable them to expand services.

Highlights of the six-bill package that cleared a state House committee this month include allowing state-chartered credit unions to partner to form a service organization to provide trust services. It would also alter regulations on fields of membership to allow businesses based out of state but with a market presence in Michigan to join a local credit union.

Right now, state-chartered credit unions have to contract with credit union service organizations, or CUSOs, out of the state to offer trust services. Many of them do, said Ken Ross, chief operating officer of the Michigan Credit Union League.

The change in the law would keep trust services and the related jobs within Michigan, Ross said.

“It makes good sense to try to home-grow those opportunities here in Michigan,” he said. “If you partner with someone out of state, then you can partner with someone here in Michigan.”

Much of the language in the bills passed unanimously by the House Financial Services Committee makes what Ross calls “technical changes” to the state law regulating credit unions. They include eliminating redundant regulatory reports and codifying past regulatory rulings into state law, as well as allowing boards of directors to delegate certain duties to senior management such as setting interest rates on deposits and buying or selling real estate. It would also reduce the required number of board meetings annually from nine to six and allow credit unions to hold virtual board meetings.

Another provision in the bills would allow a family managing an estate to move it to a credit union. Language allows the move if the person who died was a member or eligible for membership prior to his or her death, or if the representative of the estate qualifies for membership.

Jeremiah Kossen, chief risk officer at Grand Rapids-based Lake Michigan Credit Union, told legislators during a recent committee hearing that he’s seen “numerous occasions” where a member was unable to transfer the management of a late parent’s estate under the present law.

“It’s really about member convenience at a difficult time and allowing (families) to do business with who they’re comfortable with,” Kossen said. “They’re comfortable working with us and they trust us, and we’ve had to turn them away because their parent was not a member prior to their passing away.”

The bills did draw opposition from associations representing banks in Michigan. Their biggest objection was the language changing field-of-membership regulations and allowing out-of-state or out-of-market companies to join a credit union if they have a local presence.

That change “will allow a business that is not located in the geographic footprint of a credit union the ability to be a member anywhere,” even without the “common bond” required for credit union membership, according to the Michigan Bankers Association and the Community Bankers of Michigan.

“What is the purpose of even having a ‘common bond’ based on geographic location? A common bond among credit union members doesn’t exist anymore under the language of these bills,” MBA President and CEO T. Rann Paynter and Community Bankers President and CEO Judi Sullivan wrote in a letter to the House Financial Services Committee.

Altering the law for field of membership has “nothing to do with the easing of the credit unions’ regulatory burden in the current market,” the bankers wrote. “They are, however, an enormous overreach that expands their business model and their excessive profits at the expense of community banks throughout Michigan.”

In his testimony to the House committee, Kossen cited the example of real estate companies based elsewhere that own local apartment complexes and wanted to become members of Lake Michigan Credit Union to facilitate monthly rent payments from tenants. Under the present law, they could not, he said.

Ross of the MCUL argues that altering regulations to open new areas of service for credit unions is needed in an era of increased competition where financial institutions need to diversify their revenue sources.

“We want to create an environment where credit unions that want to do this, can do this,” Ross said. “In a competitive marketplace, we want to be able to provide every possible service that members could want.”

Legislators did strip language from the original version of the bills that would have allowed credit union boards to change their bylaws without regulatory review and approval.

The Michigan Department of Financial and Insurance Services objected to the change. While he’s all for reducing regulatory burdens, Department Director Patrick McPharlin worried that eliminating state review of bylaw changes could lead to credit unions doing something that threatens their soundness.

“Bylaw changes are significant operational changes and it is important that they be reviewed,” said McPharlin, the former CEO of Michigan State University Federal Credit Union who took over as department director in May after a brief retirement. “You can’t just allow them to do anything they want without an approval process.”

Read 2558 times Last modified on Monday, 23 November 2015 08:59

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