The Michigan Credit Union Act (MCUA), last updated in 1986, governs the activities of Michigan’s 274 state-chartered credit unions.
The Michigan Credit Union League (MCUL) contends legislative and regulatory changes are needed to enable state-chartered credit unions to keep pace with the evolving needs of members.
David Adams, MCUL president and CEO, believes the revised act will level the playing field in the consumer finance industry.
“Allowing a broader member base and alternative services like check cashing and payday lending to state-chartered credit unions will foster greater competition — and greater competition is always better for the consumer,” he said.
New provisions would:
- Allow greater flexibility for credit unions to expand their fields of membership.
- Permit credit unions to serve non-members with basic services such as check cashing, wire transfers, money orders and traveler’s checks.
- Enable credit unions to offer members small, short-term loans.
- Give credit unions authority to offer trust services through a subsidiary organization or Credit Union Service Organization.
The only opposition to the bill that Adams is aware of is coming from the banking industry — specifically, the bankers association.
“That’s to be expected,” he said. “In my career I can’t recall a time when bankers have not opposed advancing any kind of legislation that is helpful to credit unions. We’re not surprised the bankers association has a number of concerns.
“We’ve tried real hard to work through those. We’ve made a number of concessions on our part and we’re hopeful that the banking industry can allow what we believe is very pro-consumer, pro-business legislation.”
Don Heikkinen, senior vice president and staff counsel for the Michigan Bankers Association, said the association is “very, very much in support” of the bulk of the bill’s provisions — in support of 138 pages of the 140-page bill, to be exact.
“We think they need a modernization of their code, just as we have done in the past,” Heikkinen said. “We have significant differences with just small parts of the bill. We’re down to arguing over less than 1 percent of the bill.”
It’s primarily the field of membership provision that concerns his organization.
“If you look at the definitions in all of the literature and all of the statutes and all of the regulations about what a credit union really is, it’s a group of closely related members who combine their money and loan it to each other,” he explained.
“When the loans are paid back, they split up any profits. For those reasons, credit unions have very favorable regulatory treatment and exemption from most taxes.”
He said regulatory treatment of credit unions is not as stringent as it is for banks, and credit unions don’t have an obligation to meet the credit needs of the communities in which they operate. Banks, on the other hand, pay taxes and reinvest in their communities, he said.
Under the new legislation, credit unions could become “more bank-like than a bank,” Heikkinen said.
“What that boils down to in the end, if they want to get away from and no longer be bound to that close community or common bond of membership, they’re really not a credit union anymore and they should be treated like all other financial institutions.”
Allowing credit unions the freedom to expand field of membership, on top of their nearly tax-free status, would give them a competitive edge over banks and thrifts, he said.
“They’re also short-shifting the taxpayers when they want to be like other kinds of financial institutions without either the financial responsibilities of taxes or the regulatory restrictions.”
The MCUA modernization bill was reported out of the Senate Banking and Financial Institutions Committee on June 19 with four minor amendments, including fee caps on services offered to nonmembers and a technical amendment that clarifies the tax status of credit unions.
The committee voted 6 to 1 to recommend the bill to the full Senate.
“I think that speaks well for what’s in the legislation,” Adams said.
He’d also like to think the committee’s favorable recommendation will bear some weight with Senate members.
The Legislature, by its very structure, has to rely heavily on the work of committees, he said. The committee, chaired by Sen. Mike Bishop, went through a very extensive review of what was in the bill, and that there were working group sessions in between hearings that allowed banks, credit unions and other interested parties to express their views, he recalled.
“I think we have strong bipartisan support in the Senate. We’re hopeful that the banking industry, via their bankers association, will recognize that, on balance, this is good legislation for Michigan even though there may be some competitive issues that they have concerns about.”
He hopes to see a revised credit union act in place by the end of the year.
“Based on the progress we’ve made thus far, I think there’s a good possibility that we will.”