Wisconsin Banks, Credit Unions Spar over Loan Participation Rule Change

MADISON, Wis. – A plan to allow Wisconsin credit unions broader powers to participate in bank-originated loans is being opposed by the state’s bankers. The change to rule DFI-CU70 would allow Wisconsin state-chartered credit unions to engage in loan participation contracts with one or more credit unions or other financial institutions and removes parity language that refers to federally chartered credit unions. The current rule, by creating parity with NCUA rules, allows credit unions to participate only in loans originated at another credit union. There are 318 credit unions in Wisconsin, and 315 of them are SCCUs. “We think this is just one step toward a broader path of eliminating the (credit union) membership requirement altogether,” said Rose Oswald Poels, vice president-legal for the Wisconsin Bankers Association. “In taking in members’ monies to participate in a loan to a non-member, we think there are some real questions with that.” Brett Thompson, president of the Wisconsin Credit Union League said it was “extremely ironic” that banks would object, especially since the bank would at all times control the loan. “We’re disappointed they decided to object,” Thompson said. “They always have the ability to pick up the phone and ask someone if they want to participate with them, whether it’s a local credit union, or a bank in the next community or a large bank somewhere else in the state of Wisconsin.” Thompson said the rule originated with Ginger Larson, the outgoing director of the credit union office. “Some banks in rural Wisconsin were looking for someone to participate with and they backed away” and didn’t make the loan when they couldn’t find another lender to participate, Thompson said. Larson, whose job is changing with the change of administrations, referred a Credit Union Times reporter to Kim Straka, communications director of the Wisconsin Department of Financial Institutions. Straka would not comment on the issue. Poels said she had heard the story about the way the rule change originated. But she told Credit Union Times that her trade association “represents 98 percent of the financial institutions in Wisconsin and we have never heard of any of our members complain about this.” Poels even wondered why anyone would consider this kind of participation an issue. “I think, what does it cost to be a member of a credit union, five bucks or something? I don’t think we’re talking about a huge commitment on anyone’s part. Our bankers don’t have a problem with that.” State-chartered credit unions in Texas have been able to participate in loans to non-members originated by banks or other financial institutions for at least a decade, said Harold Feeney, commissioner of the Texas Credit Union Department. But, Feeney said, under Texas regulations, credit unions would not treat the participation as an investment. “It’s an authorized loan,” he said. “And they do the same analysis” as they would if it were a loan. -