Michigan is the latest state to pass legislation giving credit unions more power to expand - and the state's bankers, surprisingly, say they can live with it.

But the American Bankers Association says that the bill, still awaiting Gov. Jennifer M. Granholm's signature, could prove damaging to banks in the long run.

The more states relax restrictions on credit union expansion, the more ammunition federally chartered credit unions will have to push for their own expanded powers, according to Keith Leggett, an ABA senior economist.

The bill, which the Legislature passed in August, would give the 274 state-chartered credit unions more flexibility to define their fields of membership, invest in subsidiaries, and provide services such as check cashing to nonmembers who do not have bank accounts.

Gov. Granholm plans to sign the bill into law, a spokeswoman said last week.

Though Michigan bankers initially fought to kill the bill, they backed off after a compromise was reached.

The original bill would have let credit unions offer trust services, and the state Office of Financial and Insurance Services would have been able to reject field-of-membership applications only if they had safety-and-soundness concerns.

The bill also would have allowed credit unions to invest up to 15% of their assets in credit union service organizations, with regulator approval.

Mathew Hanley, the director of government relations for the Michigan Bankers Association, said bankers were concerned that the original bill would have made credit unions virtually indistinguishable from banks by allowing them to admit nearly anyone as members.

After negotiations among the credit unions, bankers, and legislators, the trust services provision was dropped. Credit unions also still must demonstrate a common bond to regulators, but the definition of common bond is less strict. Also, the investment cap on service organizations was lowered to 12% of assets, and such investments would still need regulator approval.

"From our standpoint, we saw enough movement on issues as a whole to remove our opposition," Mr. Hanley said.

Similar bills have been passed in Texas, New York, and Wisconsin, and Mr. Leggett predicts that trade groups will push for changes in federal laws so that state-chartered credit unions do not have a competitive advantage over federally chartered ones.

"As state charters expand powers," federal credit unions will start adopting state charters, and the Credit Union National Association will push for "congressional relief," he said.

John McKechnie, the senior vice president for government affairs at the CUNA, said credit unions need to expand their fields of membership, because they can no longer rely on employees from one company, as they did when credit union laws were first written in the 1920s.

"Credit unions deserve to be 21st-century financial institutions, just like everybody else," Mr. McKechnie said.

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