Lamont signs bill easing regulations on state-chartered credit unions; legislation received pushback from banks
CT-N
Gov. Ned Lamont
A bill that significantly alters state statutes regulating credit unions was signed into law on Tuesday by Gov. Ned Lamont.
House Bill 7083, now Public Act 25-37, made several changes affecting state-chartered credit unions, including:
Allowing them to extend credit with preferential rates or terms to “insiders, employees, and governing board members if there is a written policy to do so and it will not result in financial loss.”
Expanding the list of loans exempt from credit union business loan requirements.
Shifting, from a credit union’s governing board to its senior management, the authority to approve charitable contributions or gifts that fall below a certain threshold.
Removing regular reserves from being included in certain calculations of capital and net worth, and
Allowing credit unions certified as Community Development Financial Institutions (CDFIs) to “accept nonmember deposits up to certain caps based on the credit union’s total assets.”
The bill also made minor technical changes, including specifying that a “loan officer” is someone who accepts loan applications or offers or negotiates the terms of personal, business or other loan products for or with the expectation of compensation or gain, but not someone who acts only as a loan processor or underwriter.
During a public hearing on the bill held in March by the legislature’s Banking Committee, the Connecticut Bankers Association (CBA) raised objections to the bill.
CBA President and CEO Tom Mongellow expressed concerns about two specific sections of the legislation, including the change allowing credit unions to accept deposits from any nonmember.
He said the proposal allows credit unions to accept “up to an amount of $3 million, or 50% of all of the credit union’s deposits. This proposal is inconsistent with the foundational principles of the credit union system.”
Mongellow said credit unions, which get tax breaks not enjoyed by banks because of their not-for-profit model, were created to allow “people of modest means with a common bond (such as working for a specific company or living in the same community) to pool their resources for the purpose of serving each other’s financial needs.”
Allowing credit unions to accept deposits from people outside of that common-bond structure “dilutes this core mission and shifts credit unions
further away from their intended purpose,” he said.
The CBA also objected to the section of the bill that exempts certain loans from the rules that govern credit union business lending. Allowing that, Mongellow said, means those loans would not be subject to regulatory restrictions and oversight.
“Commercial lending is a high-risk activity for any type of financial institution,” he said. “Without the proper expertise in maintaining a commercial loan program, a financial institution can quickly get into trouble
from a safety and soundness perspective.”
The bill was supported, though, by the Credit Union League of Connecticut.
Bruce Adams, the league’s president and CEO, said the bill generally “increases efficiency and predictability in credit union operations,” and expands access to capital for CDFIs, which “help underserved communities and populations access financial services, expand economic opportunity, and support community development.”
The credit union bill was among 29 bills the governor signed into law on Tuesday. To date, he has signed 65 bills and signed line-item vetoes of two bills.
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