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Wednesday, Nov 29, 2023

Finance—Credit unions find state charters offer advantages

Finance: New Federal Law Is too Restrictive, According to Officials

When the federal government approved rules broadening credit union membership in 1998, local credit union officials hailed the legislation.

Now two years after the approval of HR-1151, several of them have switched from federal to state charters to avoid the restrictions imposed by the measure. Some of their top executives said federal guidelines for accepting new members are too strict.

“Under a federal charter we were restricted to the Kearny Mesa Industrial Park,” said Jim Goulet, president of Kearny Mesa Financial Credit Union. “You had to be employed there and our state charter allows us to bring in anyone who lives, works or worships in San Diego County.”

He said while HR-1151 allowed federal credit unions to take in more than one specific group of depositors with a common bond, such as place of employment, it didn’t allow the tax-exempt organizations to expand memberships to entire regions like San Diego County.

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Among the other local credit unions changing their charters in the past two years are Point Loma Credit Union, Cabrillo Credit Union and North Island Credit Union, he said.

“We converted from a federal to a state charter in March 1998 because we were convinced HR-1151 wouldn’t help us increase our field of membership,” said Gene Roberts, president and CEO of Financial 21 Community Credit Union of San Diego.

“Before that, our membership was restricted to employees of San Diego Gas & Electric Co., their families and employees of about 100 other local companies , most of them small.”

Now that it’s a state-chartered credit union, anyone who lives or works in San Diego County can become a member, he said.

One local credit union even converted itself into a state-chartered mutual savings bank because the federal credit union guidelines were too restrictive.

Pacific Trust Bank was originally called Rohr Federal Credit Union. It became a bank in January mainly because it had begun to specialize in real estate loans on apartment buildings, said Hans Ganz, the bank’s president. Those types of loans were different than the consumer loans usually made by credit unions, he said.

There were also the higher capital reserve requirements for credit unions making unsecured consumer loans that prompted the organization, which made mostly loans secured by real estate, to change, he said.

The charter change by local credit unions is part of a national trend that started in 1998, according to Bryan Knight, director of state regulatory relations for the National Association of State Credit Union Supervisors in Washington, D.C.

From 1990 to 1995, there were less than 12 credit unions converting from federal to state charters, he said. In 1998, there were 36 conversions. During 1999 there were 38.

“In the five-year period from 1990 to 1995, more than 90 state-chartered credit unions converted to federal charters,” Knight said. “In 1998, there were three conversions and in 1999 there were five.”


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