JOHN B. WINNE
‘Modernization’ needed
Is it modernizing an industry or stepping out of bounds?
“The word modernization just keeps coming up,” said John B. Winne, president and chief executive officer of the Boston Firefighters Credit Union and MCUL’s second vice-chairman, summarizing the intent of several bills MCUL refiled this year following a Sept. 26 State House hearing.
“The [state law] that talks about what credit unions can do on the mortgage side is about 70 years old,” said Winne, who is a guest columnist for Banker & Tradesman. “And the branching regulations that govern us were written in 1965.”
In its proposal, designated Senate Bill 647, MCUL would like to amend Massachusetts state law to allow credit unions to decide for themselves how much money they could lend out in mortgages, rather than be governed by current statute that limits the amount to $200,000 unless the credit union gets a regulatory exception.
Federally chartered credit unions – about 140 of 232 total in Massachusetts – have more freedom to make such decisions at the board level, Winne said.
MCUL also proposes, in House Bill 1053, that state-chartered credit unions be allowed to branch across state lines and more than 50 miles from their headquarters. Federally chartered credit unions in Massachusetts and state-chartered credit unions in the five other New England states are able to do so already.
A third major proposal, House Bill 1060, would allow federally and state-chartered credit unions in the Bay State to merge with the federal charter surviving, and a fourth, House Bill 967, would allow state-chartered credit unions to accept monies deposited by Massachusetts cities and towns.
The Massachusetts Bankers Association called the proposals “audacious attempts by large credit unions to expand their product and service base to mimic that of large banks” in testimony delivered at the State House by Laura Bronwell, chief information officer at Whitinsville-based Unibank for Savings.
“What the credit unions do not explain very well is that while they may look and act like banks, and call themselves banks in their advertising campaigns, they do not pay [corporate income] taxes or abide by the same rules as banks, cheating taxpayers and local communities out of millions of dollars annually,” Bronwell told members of the Joint Committee on Financial Services.
“We are sensitive to the desires of credit unions to compete,” MBA Chief Operating Officer Kevin Kiley said in a later interview with Banker & Tradesman. “But given their competitive advantage due to tax status, we felt the more appropriate measure would be to set [the credit union bills] aside and do a study.”
A hypothetical bank that earned $1 million in income in a given year, in a 28 percent tax bracket, would pay $280,000 in state and federal corporate income taxes, Kiley said. At the hearing, he said that banks pay “40 cents on the dollar” in state and federal taxes, while credit unions pay “nothing.”
Competition and Concerns
The 1934, Depression-era law that created federal credit union charters exempted them from certain federal taxes to help them fulfill their mission of serving people of lesser means.
Kiley said larger credit unions, such as HarborOne, Greylock Federal and Digital Federal no longer hew to that mission.
“They have, for all intents and purposes, become full-service banks,” he said.
Kiley said some legislators may agree with MBA that such credit union proposals need more study, pointing to a bill Rep. Ronald Mariano, D-Quincy and House chairman of the Financial Services Committee, has filed. It would create a commission to study state- and federally chartered credit unions and the overall health of Massachusetts’ financial markets.
But an analyst in Mariano’s office insisted that bill is simply meant to give the committee a “vehicle to study the issues if they are inclined to during this session.”
Testifying in favor of S. 647, Massachusetts Division of Banks General Counsel Joseph Leonard said the state agency wouldn’t normally take sides on an industry-supported measure. “This time,” Leonard said, “we felt compelled to.”
The bill would, in essence, make universal the rights that currently are being granted in cumbersome, piecemeal fashion.
“This petition, with exceptions for adjustable-rate mortgage loans and reverse mortgage loans, grants a credit union general mortgage lending authority,” he said. It would allow credit unions to offer more competitive mortgage products to their members and move beyond the current approach whereby credit unions have to apply individually to regulators at the DOB for each successive loan type they wish to offer.
The approach, dubbed Parity Regulations, was instituted by the Division of Banks in 1999 following authorization by the Legislature. The measure was designed to address inequities between state and federal charter powers. Winne called it “a Band-Aid that has fixed the problem temporarily.”
In Boston, when members of his $130 million-asset credit union want to buy homes – and want to get their loans from their credit union – the current limits are stifling, Winne said.
“You can’t even buy a one-bedroom condo for $200,000,” he said.
MCUL spokesman Rob Kimmett identified H. 1060, which would allow state-chartered credit unions to merge with federally chartered institutions and retain the federal charter in the process, as “among the most important” of the bills the league is backing.
“The current absence of that provision removes many of the alternatives” for credit unions considering their futures, he said.
Eugene Foley, president and CEO of state-chartered Harvard University Employees Credit Union, said allowing state- and federally chartered credit unions to merge is essential as consolidation increasingly may be necessary for many smaller institutions to remain competitive and viable.
H. 967, MCUL’s proposal to allow credit unions to accept public deposits, would benefit towns and cities just as it would credit unions, Kimmett argued, since “credit unions are very conscious of paying the best rates” on deposits.
MCUL Senior Vice President and General Counsel Mary Ann Clancy said the league filed the bill “due to requests that credit unions have received.”
Bankers have argued that it’s the corporate income taxes credit unions don’t have to pay – an unfair competitive advantage – that allows them to offer higher interest rates.
Foley said the major difficulty MCUL foresees is that some of its bills “aren’t particularly compelling” to legislators who currently are more focused on mortgage lending reforms in the wake of the subprime lending and foreclosure crisis.
But, he said, “I think for the most part, the Financial Services Committee has not found anything radically wrong with [the bills].”
Now that the bills have been heard in the Joint Committee on Financial Services, the testimony is being reviewed, and the committee will hold an executive session and decide whether to report them out favorably. No date for the session has been set. If bills are reported out favorably, they must then follow a multi-step process that will determines when and at what point the full House and Senate will consider them.
