'Quantam Leap Forward'

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The state Senate last week unanimously approved a broad rewrite of Connecticut's credit union statute, the first major reform of the five-decade-old statute.

The bill, which earlier passed the state House, is expected to be signed into law by Gov. John Rowland as it was written by his state Banking Department.

The 100-page bill is so broad is gives Connecticut's 50 state charters powers to not only do whatever federal credit unions can do but whatever state charters in any other state may do, also, through a so-called Super Wildcard provision.

"This really is a quantum leap forward," said Kevin Stewart, president of the Connecticut CU Association, which lobbied for the measure. "Typically, you see other states looking to create parity with federal charters. This goes beyond that."

Among the major provisions of the bill is a section that will allow state charters to offer many services and products they were previously required to offer through CUSOs, including securities, insurance, trust services, and servicing and processing loans for other credit unions.

It also gives state credit unions broad new investment authority to buy obligations of any state or territory of the U.S.; loan participations with both state and federal credit unions; shares of CUSOs; shares of debt or equity mutual funds; money market funds, and Yankee dollar or Euro dollar deposits and bank notes.

Expanded FOMs

The measure also expands on existing field of membership (FOM) allowances by eliminating the term "local" from the definition of a community charter, and removing the 3,000-member ceiling on select employee groups, or SEGs. It also creates an expedited expansion process allowing state charters to add groups smaller than 500 members without regulatory approval.

The bill further gives state charters powers that credit unions in most states already enjoy, such as the ability to offer excess deposit insurance (over the $100,000 offered by the National CU Share Insurance Fund), and to join the Federal Home Loan Bank System.

And it establishes procedures for credit unions to convert to or from federal charters, or to convert to mutual savings banks, as some credit unions in other states have opted to do.

There were several provisions requested by credit unions that were not included in the final package, including the ability for state charters to obtain private deposit insurance, or for credit unions to be able to pay directors.

Facilitating the bill's easy passage was the fact that it originated with the state Department of Banking, where Commissioner John Burke met with credit unions to help draft the measure. "We were very fortunate that Commissioner Burke was interested in doing this," said Stewart. "Obviously, the fact that this was the commissioner's bill helped it tremendously."

Burke said the initiative was prompted by the continuing consolidation of credit unions in the state and the need to update the outmoded statute. He noted that the bill gives credit unions powers as broad as credit unions anywhere in the U.S., "but with appropriate oversight on our part."

The main features of the bill were worked out with credit union representatives over a number of meetings last year at the behest of the Banking Department, said Burke. "Normally, what you would find is an industry would come forward with something like this and the regulator would move behind it," he said. "But often the industry can't coalesce on something of this magnitude."

Careful Not To Go Too Far

One of the overarching themes during the discussions with credit unions was that the bill not go too far in granting credit union vast new powers. "There was some overriding concerns that we not create banks," said Burke.

But just as important was the lack of opposition from the state's banking lobby. "The relationship between the banks and credit unions here is not contentious. We've had, I would say, a good relationship with the Connecticut Bankers Association," Stewart said.

Burke said he met with the banking lobby during the process to get their input and they decided not to oppose the measure. "Banks are always moaning about taxability, but they understand that we can't do anything about that," he said.

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