How several recent state-level developments could impact credit unions

Updated statutes

Following on the heels of Michigan, Idaho and others, two states this week saw governors sign updates to state credit union statutes into law.

State leagues in Washington and Kansas worked alongside lawmakers to craft legislation that modernizes state regulations and brings parity with the federal charter. In Washington, that meant allowing for virtual membership meetings, granting the state's Department of Financial Institutions authority to issue rules approving investments and confirming the DFI's authority over field of membership permissions. More than 65 changes were made to Kansas laws, including dropping a requirement that credit unions file certain forms in triplicate and putting in place measures that allow more local control by members.

Despite these changes and others taking place at the state level, a representative of the National Association of State Credit Union Supervisors said this sort of activity is not uncommon during state legislative sessions and is not indicative of a wider shift in regulations for state-chartered CUs.

Pictured above: Washington Gov. Jay Inslee signing an update to the Washington Credit Union Act into law.

Hitting the brakes in the Wolverine State?

Michigan credit unions saw continued growth in 2018, including a significant lift in member business loan balances and first mortgages. But recently released data shows membership growth slowing and overall lending scaling back even as some areas exceed previous years' statistics. More than half of the state's population belongs to a credit union, though population growth in 2018 was just 0.2 percent.

Credit unions in Detroit and the surrounding area have struggled to deal with the Motor City's uneven recovery, which has seen some neighborhoods rebound while others have not. Elsewhere in the state, some CUs have taken to innovative measures to boost mortgage volumes and attract first-time homebuyers.

Public deposit push

A current bill before the Florida legislature would allow credit unions to take public deposits in certain instances, though that proposal has received a predictably negative response from the state's banking lobby. A similar measure in Arkansas has struggled to gain traction in the last two legislative sessions there, but CUs and the Cornerstone Credit Union League, which serves Arkansas, Oklahoma and Texas, are eyeing the 2021 session as their next opportunity to make progress on the matter.

The push in both states comes as credit unions have seen a growing need for additional deposits to fuel loan growth. In the fourth quarter of 2018, the national loan to share ratio reached 85.6 percent, up three percentage points from a year earlier, according to data from the National Credit Union Administration. That liquidity squeeze is likely to continue.

Can New Jersey hang on to Pennsylvania's coattails?

Credit unions in Pennsylvania are hailing a strong 2018, with loan growth exceeding 9 percent while membership rose more than 4 percent despite the number of institutions dropping by almost 5 percent. According to a spokesperson at the Pennsylvania Credit Union Association, because the state is home to so many small credit unions which struggle to grow, those figures would be even higher were it not for those challenged institutions.

But while the Keystone State has excelled, neighboring New Jersey continues to lag, including holding the nation's lowest median loan growth rate for most of 2018. But a recently announced measure could hold the key to stopping that problem. State credit union leagues in Pennsylvania and New Jersey have announced their intention to merge, with the two organizations' foundations and for-profit service corporations expected to operate separately for the time being but eventually brought together in the combined organization. The merger is expected to take effect Jan. 1, 2020.

Puerto Rican cooperativas on the grid

As the U.S. territory of Puerto Rico grapples with its electrical grid problems that left the island in darkness for months after Hurricane Maria in the fall of 2017, credit unions are banding together to alleviate anxiety around the island’s unstable electrical network.

The Puerto Rico Electric Power Authority has long had a monopoly on generating and supplying electricity to the territory but the government-owned corporation has fallen on hard times. Financially, it has defaulted on its debts and its system badly needs to be upgraded.

But new legislation spearheaded by the island's credit unions, or cooperativas, that was signed into law in December authorized the creation of energy co-ops. That law could serve as a way to help members and in hopes of eventually making more loans for solar energy systems once the electric co-ops take off. Many of them are now looking to specialize in disaster financing, including providing loans for generator purchases, deployment of solar power technology and financing repairs of homes and businesses that were destroyed during the hurricane.