More states poised to overhaul their credit union charters

A number of updates to state credit union charters could be in the works.

Massachusetts passed a law earlier this year, modernizing its credit union laws for the first time in nearly 30 years, and Maryland is also looking at making changes. Other states are working on their own bills.

Those efforts are keeping credit union advocates busy.

“Every state credit union league that has its finger on the pulse of what’s going on in the market … should always be looking for opportunities to modernize,” said John McKechnie, a credit union consultant at Total Spectrum.

“The question always becomes is it going to be a focused, one- or two-provision effort in their state legislature, or is it going to be a blanket modernization of the entire act? It seems to vary based on the politics of the state capitol,” he added.

Modernization of credit union statutes has been a focus for several states in recent years, including Michigan, Missouri, Kansas, and Washington. Forty-five states allow for a state charter and 26 of those have enacted some kind of update to their charter since 2016.

Industry advocates in Massachusetts were prepared when the opportunity arose to update the state’s statues, said Ron McLean, president and CEO of the Cooperative Credit Union Association, which serves CUs in Massachusetts, New Hampshire, Rhode Island and Delaware. The group had tried to move similar legislation in the past, but it often got pushed aside by more urgent matters, he explained.

The Massachusetts bill, which modernized rules around credit union governance, was able to move in part because of some staffing changes at the Cooperative Credit Union Association.

“We revamped our external lobbying team and brought in two individuals who were in our state legislature, and within a month or two of that happening it was myself, my team, some of our credit union CEOs and our counterparts from the Massachusetts Bankers Association, and we both came together to meet with the chairman of the financial services committee,” he said. “We had a great dialogue back and forth and the result was a consensus bill.”

The updated act now allows for electronic member voting and adding associate-level directors. It also eliminates a 100-mile radius requirement for real estate loans and increases options for loan participations. The bill also included what McLean called “some clean-up language” for bankers in the wake of their own modernization law a few years ago.

“We’ve had various bills in the past that had more in them than the modernization bill, but we just got the point where the appetite was good for everyone involved to push this across the finish line,” McLean added.

The big question now is how quickly other states, and the National Credit Union Administration, will follow suit.

“I do think the pandemic led to all of us — not just credit unions — realizing what can be done virtually, and that’s probably going to lead to more states thinking about how members access services,” said Lucy Ito, president and CEO of the National Association of State Credit Union Supervisors.

“The pandemic has just accelerated everyone’s comfort level with doing things remotely and doing transactions remotely,” Ito said. “The trend was already there, but the pandemic accelerated consumer acceptance and, frankly, also regulator acceptance on the examination side.”

As states make their own moves, that could also spur the NCUA to act. Ito suggested that a slew of state-level changes to field-of-membership regulations may have pushed the NCUA to update its own rules a few years back.

The next modernization law will likely come from Maryland, where the Maryland and D.C. Credit Union Association is working to pass legislation that would update the Maryland Credit Union Act so that state-chartered CUs there have parity with federal charters.

“If credit unions are working on something where the rules are more permissible from a federal level, then credit unions can apply to the state … and the state has 45 days to get back to them with any questions, and then [the credit union] can adopt it,” said John Bratsakis, the association’s president and CEO.

It would be the first major update to the Maryland charter since the early 2000s, Bratsakis added, and it has moved forward easily in part because bankers in the state haven’t objected to it. Maryland’s state-chartered banks had similar legislation passed in 2019.

The MDCUA had intended to bring this legislation forward last year, but the pandemic intervened. This year, Bratsakis said, the legislature has created different processes to more easily move bills through during the 90-day session.

Bratsakis suggested that because credit unions’ profile as an industry has risen in the wake of the 2008 recession, lawmakers are often more willing to consider legislation that makes it easier for the industry to help consumers.

And, he said, more states are likely to push their own updates in the years ahead.

“I would anticipate in a lot of states you’ll see this pace continue,” Bratsakis said. “It’s more accelerated than it has been — maybe not as fast as some of us would like — but it’s definitely at a different pace than it used to be.”

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