ALBANY, N.Y.-Credit unions and insurance companies in the state will finally be able to do business soon thanks to a bill headed to Gov. David Paterson's desk.
The legislation reverses a ruling of the New York State Insurance Department that prevented insurance companies from investing in credit union share certificates, despite the fact that they frequently deposit cash into bank CDs.
The issue first arose about two years ago, according to Credit Union Association of New York Associate General Counsel Henry Meier, when a cooperative insurance company in the capital city approached a local credit union about depositing money into a share certificate. But the state insurance department informed both parties that according to state law, the insurance firm had no authority to buy shares.
"There is an underlying logic-the basic point is that the way New York's insurance law is set up [insurance companies] can only invest in obligations. When they put money into a bank, it is a traditional debtor/creditor relationship," Meier explained. But interest on a share certificate technically represents equity in the credit union and insurance firms are not allowed to make such investments. The bill, which passed unanimously, erases the technicality by pointing out that there is not practical distinction between a bank CD and a share certificate.
"And there are lot of cultural similarities between a lot of these cooperatives and credit unions," Meier added. "It just makes sense that people with a similar mentality would want to put money into a credit union."
Though the pending legislation will allow property/casualty insurance companies to do business with credit unions, life insurance companies are still barred from doing so. Nevertheless, Meier expects a "steady flow" of a number of insurance firms, especially cooperatives, turning to credit unions for investments.
He also praised the leadership on the Assembly and Senate insurance committee chairs, as well as both political parties for moving swiftly on the measure and passing it without incident.
"To get anything passed this year with that little rancor is really a tribute to their leadership," Meier said.
While Meier doubts there will be any objection to sending the bill to Paterson for his signature, there is no timetable for that move. The state is still operating without a budget, which could delay the bill's signing.
