Banking & Finance and Government

Seven credit unions look to form trust

Critics say entity driven by tax-exempt institutions would put banks at a competitive disadvantage.

August 17, 2018
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Seven Michigan credit unions have applied to form a trust so they can offer their members fiduciary services they otherwise could not provide.

Under amendments to the banking code and the Michigan Credit Union Act of 2016, the state of Michigan has approved the institutions’ joint application to form Credit Union Trust.

Pending regulatory approval, the trust will open in the first quarter of 2019 at 31155 Northwestern Highway in Farmington Hills in a leased spaced owned by Community Choice Credit Union.

Not everyone is excited about Credit Union Trust. Some bankers in Michigan have expressed concerns, including Art Johnson, chair of United Bank, who told the American Banker he finds the development “very disturbing.”

Credit Union Trust will serve the seven founding credit unions’ members throughout the state via a team of six to eight traveling employees.

It will offer investment, trust and related services. Though technically a bank, it will not make loans or accept deposits. It will be a credit union service organization that will be equally owned by the founding shareholders.

Trust applicants are as follows:

  • Alpena Alcona Area Credit Union, based in Alpena with seven locations in the state

  • Community Choice Credit Union, Farmington Hills, 20 locations

  • ELGA Credit Union, Burton, 11 locations

  • Frankenmuth Credit Union, Frankenmuth, 23 locations

  • Honor Credit Union, Berrien Springs, 24 locations

  • Members First Credit Union, Midland, 11 locations

  • Team One Credit Union, Saginaw, 12 locations

Robert Sajdak was named CEO in the application and currently is serving as a consultant to the founders. He brings more than 40 years of senior-level trust experience to the role, including 35 years at Comerica Bank, where he served as SVP and group business manager of private fiduciary services.

He said the state has 100 days from July 30 to accept or reject the application. If approved in November, “we can go out and start hiring,” he said.

Scott McFarland, CEO of Honor Credit Union, is a spokesperson.

He said the seven organizing CEOs have been longtime collaborators when it comes to idea sharing and resource pooling. When the banking code changed, creating a trust was a natural next step.

“Our members are always looking for continuous services, and our objective is always to be able to say ‘Yes’ because they are the owners of our co-operatives, and (offering trust services) has not been something we can do,” McFarland said.

“When this came up, all of us started (saying) this was something we would need in the future as the transfer of wealth continues and as people are looking to a neutral party to manage that rather than putting a family member in that position.”

He said the credit unions do not expect the trust to be a major revenue-generating enterprise; it’s more about retention of its members. That said, financial projections show it will reach profitability in a few years, allowing it to meet fiduciary responsibilities.

If approved, this will be the first trust created by credit unions in the state of Michigan. McFarland said he is only aware of two others in the nation — Tampa, Florida-based Members Trust and “maybe one out in Washington state.” He said it’s a “pretty imaginative” idea.

United Bank President and CEO Mike Manica said although United Bank does not have a trust, this development gives credit unions an “unfair” tax advantage over banks that do.

Credit unions are exempt from paying corporate income taxes and are not required to meet Community Reinvestment Act regulations.

In return for the exemptions, the Internal Revenue Service expects credit unions to abide by certain standards, which include helping low-income, unbanked people; restricting their customer base; and avoiding “high-risk, high-return investments,” according to the Tax Foundation.

“If you look at the profile of people they are serving, they are not low- and moderate-income people,” Manica said. “They have a built-in advantage, and they are not using that advantage to serve the people it was intended to serve.”

He added the operations of the trust will be supported by untaxed revenue, unlike banks that have trusts.

“The largest banks are multibillion institutions, and we have to earn it, pay our income tax and move on. I have no problem competing with credit unions,” Manica said. “I would be the first to welcome them if they were paying their fair share of taxes.”

He said that as past chair of the Michigan Bankers Association, he believes many of his peers agree.

“The battle over (the banking code changes) is over and has been lost. We have to continue our commentary on the fact that it is unfair,” Manica said.

McFarland said he doesn’t see the move to create Credit Union Trust as an encroachment on banks’ territory.

“We are really focused on our members … members we have already,” he said. “Our goal is to provide a service we currently can’t without having to send them to a bank.

“They chose to be at a credit union for a reason, and as a credit union, we feel it’s our job to fulfill their needs as the law allows.”

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