MichiganGov. Rick Snyder recently signed into law the first comprehensive update to theMichigan Credit Union Act in 13 years with one of the objectives being to levelthe playing field between state and federally chartered credit unions.
The changes — made as a result of a collaborative effort betweenthe Michigan Credit UnionLeague, the Michigan Department of Insurance and Financial Services and the statelegislature — were in part aimed to remedy several situations in which federallychartered credit unions were able to take advantage of opportunities that theirstate brethren could not. For example, charitable donation accounts were permittedunder the federal charter but not state charters, Ken Ross, COO for the MichiganCredit Union League, said in an interview. Additionally, the NationalCredit Union Administration recently took a step away from having a cap on fixedassets, so language was put into the Michigan law that essentially eliminated thefixed asset cap for strongly capitalized credit unions that meet basic requirements.
Michiganlast completed a rewrite of the state Act in 2003, so updates were needed. The MCULspoke to its members to identify desired changes that made sense while keeping creditunions safe and sound. Ross said there was give-and-take throughout the process,and some language did not survive the final draft, including a proposed field ofmembership expansion. But he said the updates were not a "one-and-done"process, and the Act will be reviewed on a continual basis. The League would liketo see the Act updated on a schedule that allows the state to be ahead of the marketrather than reactive to it, Ross said.
One ofthe biggest changes made by the law gives credit unions the ability to diversifytheir revenue streams by offering trust services through a credit union serviceorganization, or CUSO. In the long term, that will be an importanttool for credit unions and something many members had requested, Ross said. "Whilenot every credit union is going to want to use this option, some credit unions willwant to round out their offerings and have this as another source of revenue diversity,"he added.
In terms of regulatory examinations, the changes include somelanguage that, Ross said, is the first of its kind in the country and deals withbest practices during the exam process. The updates allow regulators to make bestpractice suggestions but keep them separate and not included in the exam reports."Very often, for small institutions, they end up chasing their tail aroundto figure out if it's something they are required to do by regulation or somethingthe examiner is just suggesting they do," Ross said.
The revisedAct also eliminates the previous three-year cap on prepayment penalties for commercialloans. By removing the cap, credit unions that do business lending should be ableto offer longer fixed-rate loans. A number of large banks reduced theiroverall exposure to the state during the financial crisis because of the economicchallenges there. The impact on the ground was that a lot of healthy small businessesessentially were "kicked to the curb" by their banks, Ross said. But italso provided opportunities for local credit unions. The change to the Act willallow credit unions to be more competitive and capture even more market share onthe business lending side. "Credit unions have always been lenders to the businesscommunity — primarily the small-business sector — and we expect that to continue,"he said.
Amongother items, the changes to the Act permit anyone to serve as a co-signer, co-borroweror guarantor of a loan, and it also reduces the number of required board meetingsto six times a year.
Ross said the trade association represents 100% of credit unions in the state, and about two-thirdsof them are state-chartered. The group wanted to make sure the state charter isone of the most progressive in the nation, he said. The state's credit unions continueto see strong competition from community and regional banks but now are also dealingwith pressure from fintech companies that are able to focus on one product or servicewithout the cost of a brick-and-mortar location or the regulatory scrutiny thatbanks and credit unions face.
LathrupVillage, Mich.-based Michigan FirstCredit Union President and CEO Michael Poulos said in an interviewthat he was pleased with the updates to the Act because they included a lot of "commonsense" changes that allow credit unions to serve their members better. He saidthere is not one particular item that stands out "but the Act clearly improvesboard governance, the exam process and gives some operational flexibility."