Bill Text: MI HB5732 | 2017-2018 | 99th Legislature | Introduced
Bill Title: Financial institutions; credit unions; authority of credit union service organization to provide investment-related services; revise. Amends sec. 407 of 2003 PA 215 (MCL 490.407).
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2018-03-20 - Bill Electronically Reproduced 03/15/2018 [HB5732 Detail]
Download: Michigan-2017-HB5732-Introduced.html
HOUSE BILL No. 5732
March 15, 2018, Introduced by Rep. Farrington and referred to the Committee on Financial Services.
A bill to amend 2003 PA 215, entitled
"Credit union act,"
by amending section 407 (MCL 490.407), as amended by 2016 PA 154.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 407. (1) Subject to subsection (3), a domestic credit
union may organize, invest in, or loan money to 1 or more credit
union service organizations that engage primarily in providing 1 or
more of the following products or services to credit unions:
(a) Automated information processing services.
(b) Share draft and other item processing.
(c) Credit and debit card services.
(d) Microfilm and microfiche services.
(e) Printing and supply services.
(f) Service center functions.
(g) Selling or leasing real estate.
(h) Automated teller machine and electronic funds transfer
services.
(i) Collection activities.
(j) Personnel services.
(k) Appraisal, closing, or other services in connection with
real estate loan activities.
(l) Investment management, investment research, and other full
service broker-dealer services, but not underwriting of investment
securities.
(m) Property leasing to credit unions.
(n) Accounting and auditing services.
(o) Records retention and preservation.
(p) Security for data processing equipment and other credit
union property.
(q) Architectural services, including, but not limited to,
providing original designs, remodeling, and redesigning.
(r) Administration and other services related to commercial
loans and participation loans.
(s) Providing management and operating services.
(t) Marketing services.
(u) Management, development, sale, or lease of fixed assets.
(v) Sale, lease, or servicing of computer hardware and
software.
(w) Sale of repossessed property or other personal property of
credit unions.
(x) Locator services.
(y) Credit analysis.
(z) Loan origination, processing, servicing, and sale.
(aa) Research services.
(bb) Developing and administering individual retirement
accounts or Keogh (HR-10), deferred compensation, or other
personnel benefit plans.
(cc) Property maintenance services.
(dd) Courier services.
(ee) Investment administration and other services related to
small business equity interests or venture capital fund investments
if all of the following are met:
(i) The target small business for a specific equity investment
is a member of at least 1 of the credit unions that have an
ownership or investment interest in the credit union service
organization; has its principal office in this state; and either
more than 50% of its assets are in this state or more than 50% of
its employees are employed in this state.
(ii) Any venture capital fund established or funded by the
credit union service organization provides an amount equal to at
least 51% of its available funds to member small businesses that
have their principal offices in this state or more than 50% of
their employees employed in this state.
(iii) A domestic credit union's aggregate investment in the
credit union service organization that is offering small business
equity and venture capital investment services does not exceed 10%
of the credit union's net worth.
(iv) None of the officers or directors of a domestic credit
union that has an ownership interest or an investment in a credit
union service organization hold an equity position in any small
business financed by that credit union service organization.
(v) Aggregate domestic credit union risk exposure through all
funding sources, loans, or investments, to any entity or group of
related entities, does not exceed 25% of net worth.
(vi) A If
the credit union service organization provides
investment administration and other services related to venture
capital fund investments, a domestic credit union that is an owner
or investor in the credit union service organization ensures that
the credit union service organization has enacted and complies with
policy guidelines for outstanding obligations and that the
guidelines include at least all of the following:
(A) A limit on the credit union service organization's
exposure to not more than 50% of its total capital and surplus in
an obligor or group of interrelated obligors.
(B) A description of the acceptable types of entities into
which equity investment may be funded.
(C) A description of the acceptable business activities of
entities into which investments may be funded.
(D) A description of the acceptable geographic area in which
an entity's principal place of business must be located.
(E) A description of the acceptable concentration risk
guidelines, relative to net worth, for equity investments,
organized by industry, geographic regions, collateral, and any
other material exposure factors.
(F) A description of the qualifications and experience
required for personnel involved in making and administering equity
investments.
(G) A requirement for origination and ongoing periodic
underwriting analysis, including specific due diligence standards
relating to periodic financial statements, credit reports, tax
data, environmental impact assessments, industry average
comparisons, and other data that may be necessary to analyze an
entity's history or experience.
(H) A requirement for periodic market value analyses of all
equity positions held.
(ff) If approved by the director, any other product or
service.
(2) Subject to subsection (3), a domestic credit union may
organize, invest in, or loan money to 1 or more credit union
service organizations that engage primarily in providing 1 or more
of the following products or services to credit unions or their
members:
(a) Equipment leasing and financing.
(b) Payroll services.
(c) Real estate brokerage services.
(d) Prepaid legal services.
(e) Motor vehicle purchasing services.
(f) Group travel services.
(g) Insurance, to the extent not prohibited by state law.
(h) Financial planning, investment counseling, or other
financial services.
(i) Consumer purchasing referral services.
(j) Income tax services.
(k) Retirement counseling.
(l) Securities brokerage counseling.
(m) Estate planning.
(n) Personal property leasing.
(o) Service contracts or extended warranty contracts for motor
vehicles, motorcycles, recreational vehicles, manufactured homes,
boats, computers, or other personal property items.
(p) Investment management, investment research, or other full-
service securities broker-dealer services, but not underwriting of
investment securities.
(q) Trust services, if any of the following are met:
(i) The credit union service organization is a state bank or
state foreign bank branch that has trust powers under part 4 of
chapter 4 of the banking code of 1999, 1999 PA 276, MCL 487.14401
to 487.14405, is a savings bank that has trust powers under
sections 421 to 428 of the savings bank act, 1996 PA 354, MCL
487.3421 to 487.3428, or is authorized to act as a fiduciary in
this state under subsection (2)(c) or (d) of section 1105 of the
banking code of 1999, 1999 PA 276, MCL 487.11105.
(ii) The credit union service organization is providing the
trust services as a host bank under an agreement described in
section 4402 of the banking code of 1999, 1999 PA 276, MCL
487.14402.
(r) If approved by the director, any other product or service.
(3) A domestic credit union may organize, invest in, or loan
money to a credit union service organization described in
subsection (1) or (2) only if all of the following are met:
(a) The credit union service organization is adequately
capitalized or has a reasonable plan for adequate capitalization if
it is to be formed or is newly formed.
(b) The credit union service organization is structured and
operated as a separate legal entity from the domestic credit union.
(c) The domestic credit union obtains a written legal opinion
that the credit union service organization is structured and
operated in a manner that limits the domestic credit union's
potential liability for the debts and liabilities of the credit
union service organization to not more than the loss of money
invested in or loaned to the credit union service organization by
the domestic credit union.
(d) The credit union service organization agrees in writing to
prepare financial statements and provide them to the domestic
credit union at least quarterly.
(e) The credit union service organization agrees in writing to
obtain an audit of the credit union service organization from a
certified public accountant at least annually and provide a copy of
each audit report to the domestic credit union. This subdivision
does not apply to a credit union service organization that is
consolidated for financial reporting purposes if the consolidated
audit program is sufficient to provide reasonable and appropriate
coverage to sufficiently test the credit union service
organization's financial records.
(f) The credit union service organization operates in
compliance with applicable federal and state laws.
(4) The credit union board of a domestic credit union that
organizes, invests in, or lends money to a credit union service
organization shall establish, in writing, the maximum percentage
amount of assets that the domestic credit union may invest in or
loan to the credit union service organization.
(5) The senior management employees of a domestic credit union
shall not receive any salary, commission, investment income, or
other income or compensation from a credit union service
organization that is an affiliate of the domestic credit union.
(6) In determining compliance with the percentage limitations
in section 401(2)(gg), all loans cosigned, endorsed, or otherwise
guaranteed by a domestic credit union to credit union service
organizations are included in determining the aggregate amount of
loans by the domestic credit union.
(7) A domestic credit union shall follow generally accepted
accounting principles in its accounting of its financial
involvement in a credit union service organization.
(8) As used in subsection (1)(ee):
(a) "Equity interests" means limited partnership interests and
other equity investments in which liability is limited to the
amount of the investment, but does not include general partnership
interests or other interests that involve general liability. Equity
interests may include subordinated or convertible debt.
(b) "Small business" means a corporation, partnership, limited
liability company, proprietorship, or other entity formed under the
laws of the United States, or a state, district, or territory of
the United States, that meets the appropriate United States Small
Business Administration definition of small business under 13 CFR
part 121 and that is principally engaged in the development or
exploitation of inventions, technological improvements, new
processes, or other products that previously were not generally
available in this state or in making other investments that provide
an economic benefit to this state.
(c) "Venture capital fund" means a limited liability entity
that is formed under the laws of the United States, or a state,
district, or territory of the United States, and whose principal
business is or will be making investments in and providing
significant managerial assistance to businesses that meet the
United States Small Business Administration definition of small
business under 13 CFR part 121.
Enacting section 1. This amendatory act takes effect 90 days
after the date it is enacted into law.
