CU Modernization Vote Coming

September 26, 2003
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LANSING — Any day now, the state Senate is expected to vote on modernization of the Michigan Credit Union Act (MCUA), which governs the activities of Michigan’s state-chartered credit unions.

Key provisions of the revised act would:

  • Allow greater flexibility for credit unions to expand membership.

  • Permit credit unions to serve nonmembers with basic services such as check cashing, wire transfer, money orders and traveler’s checks.

  • Enable credit unions to offer nonmembers small, short-term loans.

  • Give credit unions authority to offer trust services through a subsidiary organization or Credit Union Service Organization.

The MCUA was last updated in 1986, and the Michigan Credit Union League (MCUL) contends that legislative and regulatory changes outlined in Senate Bill 496 are needed to enable state-chartered credit unions to keep pace with the evolving needs of members.

MCUL President and CEO David Adams said the revised act would level the playing field in the consumer finance industry.

The Michigan Bankers Association (MBA) says it supports the bulk of the bill’s provisions, but is against the idea of doing away with long-established requirements that limit credit unions to a “field of membership,” which means members have to have a common bond, such as a place of employment, a church, or residence in a specific geographical area.

Credit unions are nonprofits and thus exempt from state and federal business taxes. The MBA further points out that the proposed legislation would not impose on credit unions the same tax and regulatory burdens imposed on banks.

The MBA’s concern is that the bill would enable credit unions to “move away from their original mission,” because credit unions would have free reign to expand their fields of membership and offer their services to virtually anyone.

The credit unions also would be able to offer basically the same services as banks, the MBA contends, but retain their nonprofit status and more favorable regulatory treatment.

Linda Schepperly, president and CEO of the Michigan Association of Credit Unions, says her organization, and some credit unions outside her association, have reservations about the bill, as well.

Credit unions were built on a common bond — whether it be where you worked, where you worshipped or where you lived, she said.

The verbiage in the proposed bill has the “common bond” requirement for credit union formation but, as it’s written now, “common bond” isn’t required for a credit union expansion. For instance, a postal credit union in Detroit could ask for an expansion to serve attorneys in Traverse City and that would have to be approved unless there was a “safety and soundness” issue involved, she said.

“There has to be some common bond, some kind of link, because that’s how credit unions were designed to be,” Schepperly said. “I don’t want to see cherry picking going on. I don’t want to see the large, well-capitalized credit union popping up branches all over the state in areas that they are choosing as lucrative areas. That’s not what a credit union is all about and that’s what my concern is.”

Just Thursday, new verbiage was proposed that would take care of that, she said.

The MBA recently hired Lansing-based Marketing Resource Group (MRG) Inc. to design and conduct a survey of Michigan voters to measure their feelings on credit unions’ tax status issue.

From Sept. 10-14, MRG conducted a survey of 600 registered Michigan voters selected at random.

Survey results indicated that 69 percent of respondents said credit unions that offer the same services as banks should be taxed like banks, while 19 percent said credit unions should not have to pay taxes like banks even if they offer the same services.

Response to a second question was more evenly divided: 45 percent of respondents said that even though credit unions are nonprofit, if they offer the same services as banks they should be taxed like banks, while 42 percent said credit unions should be exempt from taxes even if they offer the same services as other tax-paying financial institutions.

MBA Vice President of Communications Todd Willoughby said the association was “gratified to see that the public is in step with our feelings on the issues.”

He said the MBA is not advocating that the state tax credit unions.

“We just want to point out what SB 496 would do and point out the differences between a tax-exempt financial institution and a tax-paying institution like a bank. Under no circumstances are we trying to put a tax on credit unions,” he said.

“We’re not trying to hurt credit unions, we would just like credit unions to remain credit unions, frankly. We just don’t want them to have that kind of advantage over banks and be working in the same marketplace and competing for the same customers. That’s why the issues of field of membership and services to nonmembers is so important.”

MCUL President Adams said he would question the wording of the questions in the MBA survey.

In contrast to the results of the MBA survey, the Credit Union National Association’s (CUNA) annual poll conducted earlier this year showed that 65 percent of 1,000 voters surveyed nationwide approved of the tax-exempt status for credit unions.

“The primary reason for the agreement was that credit unions are not for profit and they return profits to their members. Forty-four percent stated this as the reason and 24 percent stated that it was because credit unions serve the un-banked,” Adams noted.

Some 64 percent of respondents to the CUNA survey also disapproved of the idea of credit unions being taxed to solve state budget woes.

Credit unions don’t offer the same services as banks, Adams said.

“We don’t offer trust services, we don’t offer commercial loans, we don’t own securities operations and insurance operations. Credit unions are not-for-profit cooperatives.”

If credit unions’ tax-free status was eliminated, credit unions would be forced to become more profit driven and bank-like in their structure and service orientation, Adams pointed out.

“From what I’m hearing, there is definitely a lot of support in the Republican caucus and on both sides of the aisle, really, to have this bill see floor action. We certainly hope it will see floor action within two weeks. I think the bankers probably would like to delay it as long as possible, obviously, because they want to restrict credit unions’ ability to grow, and I think they recognize that we have a lot of support for the bill.”           

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