Chelsea-based Metropolitan Credit Union is among the state-chartered institutions that hope proposed regulatory changes will put them on a level playing field with their federal counterparts.

The rules for state-chartered credit unions could soon change to allow the institutions to follow regulations similar to their federally chartered counterparts.

In the past eight years, the Massachusetts Division of Banks has considered changes to the state regulations for credit unions, comparing them to the rights granted to federal credit unions. Last Tuesday, the DOB conducted a public hearing to gather input on proposed amendments to the Parity with Federal Credit Unions regulation. If the amendments are adopted, the state-chartered institutions would have more lending and investment capabilities along with other changes.

The changes include: amending the definition a residential mortgage loan to include manufactured home loans; allowing credit unions to make indirect loans for recreational vehicles; clarifying mortgage loan authority to include subsequent liens, not just second liens; amending consumer and non-residential loan participation authority to extend beyond the commonwealth and include government agencies; adding additional investment authorities, including repurchase transactions, securities lending transactions, borrowing repurchase transactions including reverse repurchase transactions, and federal funds from any financial institution insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration; increasing investments in land, building, improvements and equipment from $300,000 to $500,000; adding new provisions to define organization members to include limited liability companies and limited liability partnerships; adding the authority to receive health savings accounts as defined; and amending the credit union service organization provision to allow CUSOs to incorporate in other states.

Although the changes may not seem drastic, updating the regulations for credit unions is critical for the industry, Mary Ann Clancy, general counsel for the Massachusetts Credit Union League, said after last week’s hearing.

“We recognize that these proposed amendments were brought forth with comments from the industry,” she said. “In the end, we believe the process works.”

Clancy was the only person to provide oral comments to the DOB last Tuesday, but written comments were handed in from five credit unions, supporting the argument that state-chartered credit unions need parity with federal institutions to compete in today’s marketplace.

Clancy said she does not believe the proposed changes are controversial. However, she called them “critical” toward allowing state-chartered credit unions to move forward in today’s marketplace. She added that the proposed amendments are also designed to promote clarity within the industry.

In addition, Clancy said the proposed amendments are based of the needs of credit unions in the current marketplace. She said the changes would allow credit unions operating under state charters to be on the same level as federal credit unions and offer members many of the same financial opportunities.

“We are always mindful of what these regulations don’t do. It doesn’t adopt all federal provisions. It’s not new ground,” she said. “It’s making [the state regulations] more useful in 2006.”

‘A Natural Extension’
According to Roy Campana, president of Boston-based Industrial Credit Union, the timing is appropriate to allow state-chartered institutions the authority to receive health savings accounts given the changes happening in the health insurance system in Massachusetts.

Health saving accounts are similar to Roth and Coverdell IRAs, which state-chartered credit unions have been offering for many years. They would allow members to put away savings for medical expenses with a tax benefit.

Campana said several of his members have been asking for health savings accounts, and he believes their popularity will increase.

“Health savings accounts are being promoted nationwide. Credit unions need to have the ability to administer the program,” said Campana.

Campana said amending the credit union regulations is important when it comes to staying current with the needs of the commonwealth. He added that the DOB has recognized the importance and needs to update the services and products credit unions are allowed to offer under a state charter.

“They need to stay current as the industry moves forward,” said Campana of changes that induce parity between the state and federal unions. “I find they do level the playing field.”

Philip Bryan, senior vice president of lending for Chelsea-based Metropolitan Credit Union, said some of the amendments are simply necessary updates. For example, Metropolitan began offering its members business loans in September 2005. Although the credit union was allowed to make such loans, it quickly realized that there was a serious problem with the outdated regulation, according to Bryan. State-chartered credit unions are not allowed to issue loans to limited liability companies and limited liability partnerships under the current regulation. Bryan said LLCs and LLPs did not exist at the time the original regulation was created. Today, LLCs and LLPs are becoming more popular and the preferred structure for forming a company, he said. In the last six months, 35 percent of the business loan applications submitted to Metropolitan have had that structure, he said.

“But we can’t give that loan to the LLC. It’s prohibited by this regulation,” said Bryan. “It really does hamper us.”

James Blake, president and chief executive officer of Brockton-based Harbor One Credit Union, said several of the proposed changes would allow credit unions some new opportunities. He said his credit union is particularly interested in the provision that would allow state-chartered credit unions to participate in indirect lending for recreational vehicles such as boats, campers and trailers. He said the idea of participating in indirect lending for recreational vehicles came to him about 18 months ago, but the current regulations don’t allow the state-chartered credit unions to partake in that aspect of business even though the federal credit unions are able to do so.

“In Massachusetts, there are few options for consumers to participate with credit unions on an indirect basis when purchasing these types of vehicles. The majority of financing in this area takes place on a national level, and therefore competitive interest rates and underwriting is limited. I believe credit unions in Massachusetts have shown strong underwriting capability and competitive interest-rate offerings through other indirect lending offerings,” wrote Blake in comments he submitted to the commissioner of banks prior to the hearing.

Blake said state-chartered credit unions have been involved in indirect lending for motor vehicles for about six years. He said the related amendment that has been proposed is a “natural extension of powers that currently exist for credit unions in the marketplace.”

Blake said there are a number of amendments before the DOB that collectively would improve the abilities of state-chartered credit unions to compete within a duel-charter system.