Seven credit unions in Michigan have joined forces to create a limited-purpose trust bank, the first of its kind in the state, sparking objections from bankers.
The move is the latest salvo in the back-and-forth between banks and credit unions, including the recent string of banks being acquired by credit unions.
Organizers behind the move are: $339 million Alpena Alcona Area Credit Union, Alpena; $1 billion Community Choice Credit Union, Farmington Hills; $605 million ELGA Credit Union, Burton; $621 million Frankenmuth Credit Union, Frankenmuth; $894 million Honor Credit Union, Berrien Springs; $491 million Members First Credit Union, Midland; and $515 million Team One Credit Union, Saginaw. Collectively, they have 108 branches and 424,000 members.
The group submitted their application for Credit Union Trust to the Michigan Department of Insurance and Financial Institutions several months ago. The department formally accepted it July 30 and has 100 days to approve the application.
Credit Union Trust is intended to be a limited purpose, state-chartered institution that will offer investment and trust services primarily to members of credit unions. It will not take deposits or make loans.
The move is “unprecedented,” Christopher Cole, senior regulatory counsel at the Independent Community Bankers of America, told the American Banker, and that he expects the Community Bankers of Michigan to fight the application.
Previously, credit unions were legally prevented from offering fiduciary services such as trusts directly to their members. A 2016 addendum to the Michigan Banking Code and Credit Union, however, changed that.
“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,” said Scott McFarland, CEO of Honor Credit Union and spokesman for the organizers.
The credit union industry collectively owns a credit union service organization, Members Trust, which provides such services, but the Credit Union Trust organizers wanted to offer a local option, McFarland told the American Banker.
Pending approval, Credit Union Trust is slated to open in first quarter 2019. It will be headquartered in leased space at Community Choice CU’s Farmington Hills headquarters. Robert Sajdak was named CEO in the application. He has more than 40 years of senior-level trust experience, including 35 years at Comerica Bank where he served as senior vice president, group business manager, private fiduciary services.
The bank will launch with $5.5 million in capital and six to eight employees with the goal of eventually expanding service to all of Michigan’s approximately 5 million credit union customers.