Honor Credit Union is one of seven prominent Michigan credit unions who have formally applied with the Michigan Department of Insurance and Financial Services to establish a new limited purpose financial institution that will provide trust services primarily to credit union members. Formal acceptance of the application kicks off a review process by state regulators that can last 100 days, at which time the organizers anticipate approval.
Honor’s CEO Scott McFarland is spokesman for the organizers of the proposed entity being called Credit Union Trust. He says, “We have a long way to go and there’s much work to be done, but we’re very pleased and excited to be moving along in the application process.” He adds, “We’ll be working closely with state regulators to meet all requirements and we look forward to being approved.”
According to American Banker magazine, banking industry trade groups “will likely file an objection” with the state.
The formal opening of Credit Union Trust is targeted for the first quarter of 2019, subject to regulatory approval. Seasoned industry executive Robert Sajdak has been named CEO in the application. He brings more than 40 years of senior-level trust experience to Credit Union Trust, including 35 years at Comerica Bank where he served as Senior Vice President, Group Business Manager, Private Fiduciary Services.
The organizers are executives of the seven credit unions. The credit unions making the application include:
- Alpena Alcona Area Credit Union, headquartered in Alpena with seven locations
- Community Choice Credit Union, headquartered in Farmington Hills with 20 locations
- ELGA Credit Union, headquartered in Burton with 11 locations
- Frankenmuth Credit Union, headquartered in Frankenmuth with 23 locations
- Honor Credit Union, headquartered in Berrien Springs with 24 locations
- Members First Credit Union, headquartered in Midland with 11 locations
- Team One Credit Union, headquartered in Saginaw with 12 locations
The seven credit unions involved have committed $5-million collectively to form Credit Union Trust.
American Banker quotes Christopher Cole, the Senior Regulatory Counsel at Independent Community Bankers of America, as calling the application, “unprecedented,” and he expects the Community Bankers of Michigan to fight the move.
The Michigan Bankers Association President & CEO T. Rann Paynter is quoted as saying they are “watching carefully.”
In their monthly newsletter, Mike Tierney, President & CEO of the Community Bankers of Michigan addresses the issue saying, “CU’s are at it again-exploiting the lack of any kind of meaningful boundaries on their activities by trying to charter a trust bank. Credit unions were formed to provide services to people of modest means who shared some type of common bond. How does starting a trust bank have anything to do with serving people of modest means?? We welcome competition but we as bankers have a duty to Michigan consumers to make sure this new entrant operates in a safe and sound manner and we at the CBM have an obligation to you – the community bankers of our state – to weigh in on this process to insure fair competition.”
Upon approval, Credit Union Trust will become the first such entity in Michigan organized by credit unions established to primarily serve the needs of credit union members. It will be headquartered in leased facilities at 31155 Northwestern Highway, Farmington Hills, Michigan.
McFarland, at his Berrien Springs headquarters facility, says, “This is an important step for Michigan’s approximately 5.23 million credit union members and the industry as a whole. Over the years, many members have asked for trust services under the umbrella of our local, community-based credit union co-op model, and now we hope to be able to serve them. Presently those members are forced to go elsewhere.”
While credit unions routinely provide a range of wealth management services for their members, they were unable to directly provide fiduciary services such as trusts. Credit Union Trust would allow them to do so. It would offer investment, trust and related services primarily to members of the shareholder credit unions, as well as members of other Michigan credit unions. Though technically a bank (it will not make loans or accept deposits), it is also a credit union service organization that will be equally owned by the founding shareholders.
McFarland explains, “The Michigan Legislature explicitly authorized the formation of such entities with amendments to the Banking Code and Credit Union Act in 2016. To our knowledge, ours is the first such application for a limited purpose financial institution — owned by credit unions to serve members — that has been made in Michigan.” He adds that Credit Union Trust will be regulated by the State of Michigan’s Department of Insurance and Financial Services, Office of Banking. Advice on the application process was provided by Patrick M. McQueen from McQueen Financial Advisors of Clawson, Michigan.
