Michigan Regulator Wants Out Of The FOM Business

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State-chartered credit unions in Michigan would be afforded some of the broadest field of membership (FOM) authority under a credit union reform bill being formulated by the Michigan CU League and the state's financial institution regulators.

The bill, expected to be introduced in the state legislature over the next month, would allow the boards of individual credit unions to determine each credit union's FOM, with the state regulator having the authority to reject the FOM only on the basis of safety and soundness.

The broad FOM provision, similar to the one provided to state charters in California, has been privately endorsed by the Michigan Office of Financial and Insurance Services, as has 60 other recommendations proposed by the department.

Frank Fitzgerald, commissioner of the OFIS, would not discuss the details of the department's recommendations, other than to confirm an agreement with the Michigan league on major provisions, including FOM.

But officials with the Michigan league said the state regulator has lent his support to the FOM proposal. "They do not want to be in the business of setting field of membership anymore," said Patrick LaPine, chief lobbyist for the league.

The state's growing budget deficit, estimated at $1.8 billion now, has apparently eliminated one issue that was being discussed. That would have scrapped the Michigan sales tax for state-chartered credit unions, a privilege currently provided federal charters. Just as importantly, there appears to be little support to add any new taxes to credit unions to help narrow the state's budget gap.

"The taxable status of credit unions is off the table," said Fitzgerald. "There is nothing there that will be approached at this time."

Among the other provisions expected to be in the bill are those providing state charters with the authority to offer trust services; to increase their investments in CUSOs to 7% of capital from 5%; to offer secondary capital accounts; to operate under multiple trade names, allowing credit unions to retain original names after a merger; and to offer certain services, like check cashing and wire transfers, to non-members within their FOMs.

Fitzgerald said his department has been working closely with the Michigan league over the last year to draft a proposal that will modernize the state's credit union statute.

"This is part of an ongoing effort at the Office of Financial and Insurance Services to update the laws governing financial institutions," said Fitzgerald, noting similar initiatives to amend the state codes for banks and s&ls.

The state commissioner said he has been meeting with representatives of the banking community to discuss the credit union effort in hopes of avoiding any major confrontations between the two traditional rivals. That includes the Michigan Bankers Association, Michigan League of Community Bankers and Michigan Association of Community Bankers, as well as the Michigan CU League and the smaller Michigan Association of CUs.

"I think we're going to be able to talk this issue through," he said. "The relationship in Michigan between the credit union world and the banking world has been a good one. I hope that we can get to the point where we're all on the same page so that the legislation can pass."

The Michigan league has undergone a comprehensive review process over the past year to draft what would be the first major rewrite of the state statute in more than 20 years, coming up with 120 provisions they hope to get into the bill.

Their strategy calls for a repeal of the old statute and its replacement with the new law, according to LaPine. They have also lined up sponsors in both the House and Senate who have agreed to introduce a bill.

The aim is to move towards greater parity with the federal statute to encourage the state's 280 state credit unions- two-thirds of the total-to retain their state charters, LaPine said. "We want to keep Michigan at the forefront of what's happening with state charters and also maintain parity with what federal charters can do," he said.

The FOM provision, they know, will be the major point of contention. "That's the one that is the 800-pound gorilla," he said. "It will be the spark point."

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