LANSING — Public Act 215 of 2003 — the Michigan Credit Union Act modernization legislation — goes into effect today, giving state-chartered credit unions greater flexibility to expand their fields of membership and the go-ahead to serve nonmembers with basic services such as check cashing, wire transfers, money orders and travelers checks.
Further, the new legislation enables credit unions to offer members short-term loans of up to $1,000 and allows them to make larger investments in credit union service organizations, or CUSOs.
But don’t expect to see a land rush any time soon.
Membership expansion has been occurring for some time, particularly among the larger credit unions, and a large number of credit unions have already gone to community charters, said Dave Adams, president of the Michigan Credit Union League.
“Those who really felt that they needed to expand have been able to do that. Some provisions in the act now make it easier for that to happen.
“It will be easier and less costly for a lot of smaller credit unions to expand because it will be less cumbersome and costly, and we do have some credit unions that are lining up to take advantage of that.”
Adams said the mood was celebratory at the MCUL Annual Convention & Exposition held May 20-22 in Detroit. MCUL members have had a great year, he said, and are pleased with the passage of the modernization act.
But the battle isn’t over for credit unions in Michigan or elsewhere. In fact, they’re prepared for a fight on a couple of new fronts.
The American Bankers Association launched a grassroots campaign in March called Operation Credit Unions aimed at lobbying Congress for equal tax and regulatory treatment between banks and credit unions. The Michigan Bankers Association has joined the cause, as well.
The Independent Community Bankers of America (ICBA) has launched a similar campaign and its members are converging on Washington to try to persuade lawmakers that credit unions have been allowed to expand too much and that they should be taxed.
According to the ICBA, “It is time for Congress to say ‘enough is enough’ to large, multi-group and geographic-based credit unions.”
The ICBA maintains that “these corporate-style, tax-exempt credit unions” are constantly beseeching Congress for more powers and adding to their unfair competitive advantage.
Don Heikkinen, senior vice president and staff counsel for the Michigan Bankers Association, said credit unions today are virtually indistinguishable from a taxed financial institution.
“There are 440 credit unions in Michigan right now. Some of them are making more than $20 million a year in profits and every single one of them pays less taxes than you, me and every other citizen in the state did last year.
“Right now the typical bank, if they make a dollar at the end of the day, they send 40 cents of it to the U.S. and the state government. If the credit union across the street makes a dollar on the same day, it keeps the whole dollar. We’re finding right now that the credit unions really have that 40 percent pricing advantage when they offer savings accounts or loans or those types of things.”
Given the federal government’s and state’s budget woes, he added, “it makes no sense to have that kind of corporate welfare in those organizations.”
As Adams sees it, Operation Credit Unions is just the latest in a long line of attacks by the banking industry. He said the ABA has made the tax issue one of its top legislative priorities, and the community banks are making it one of their top priorities, too.
“As we meet with lawmakers and give them the facts about our market and our growth rate and the good work we’re doing, there’s no appetite in Congress to disadvantage credit unions,” Adams remarked.
The MCUL plans to lobby Congress to fight Operation Credit Unions during its annual “Hike the Hill” event June 9-10.
Adams said he seriously doubts that bankers’ lobbying efforts will result in a proposed bill this year, considering it’s an election year.
“I think that the bankers are just making themselves look bad at a time when they’re having record profits and record growth. The banking industry in the U.S. last year had combined profits of $300 billion, which accounts for a third of all corporate profits.
“Our market share of the financial services industry nationwide is 1.5 percent. They should leave well enough alone, as opposed to going after credit unions.”
Lake Michigan Credit Union in Grand Rapids is in the process of converting to a bank, and there are other credit unions around the country converting to banks, as well, Adams said.
“When was the last time anyone heard of a bank converting to a credit union? In Michigan we’ve had some 30 new bank charters and not a single credit union charter in the past 20 years.
“When lawmakers hear those facts and understand what’s really going on,” Adams said, “they recognize that this is just an emotional, gut reaction by bankers to the competition they’re facing from credit unions.”
Adams said a tax on credit unions would be a pass-through tax to consumers, and a lot of lawmakers aren’t interested in raising taxes on consumers. And if the tax exemption goes away, there would be less incentive for credit unions to stay credit unions.
“Consumers then lose that cooperative alternative benefit where they tend to get better rates and lower fees. That’s why the tax policy is so important.”
Then there’s the Credit Union Regulatory Improvements Act (H.R. 3579), which would increase credit unions’ commercial lending authority.
The bill would raise the regulatory cap on the amount of business lending credit unions can do to 20 percent of a credit union’s net worth, up from 12.25 percent under current law. It would also raise the limit on loans exempt from the cap to $100,000, up from the current cap of $50,000.
Another provision would establish a risk-based measure of credit unions’ financial health that would replace the current percentage-based system.
According to Adams, if credit unions could operate with risk-based capital, they’d have more opportunities to invest in their community and make loans.
Heikkinen sees it otherwise. He said the MBA primarily objects to legislative and regulatory gains that credit unions have made that are “inappropriate for their organizations and their charters.”
The general feeling among bankers is that credit unions have evolved into something they were never intended to be.
“They absolutely have every ability, every authority and every opportunity to offer any old product that they want to the consumer in Michigan, and that makes them virtually no different from a tax-paying financial institution,” Heikkinen said. “The resolution enhances their powers and makes them even more like banks.”
Heikkinen expects the tax exemption issue will be a matter for discussion next spring and that a resolution or bill could be introduced in 2005.