Proposed legislation around the country is opening the market for credit unions to compete for municipal deposits, but a law circulating in one Southwestern state assumes a more aggressive position.
This week for CreditUnions.com, I wrote about the growing national trend of credit unions and advocacy groups working to pass legislation to increase local deposit, investment, and development opportunities. One of the major battles over legislation is taking place in New York State.
“It’s time to change the regulation … and allow municipalities the option to utilize a credit union,” Credit Union Association of New York president William Mellin told me in an interview. “We have credit unions that are sponsored by a municipality, yet the municipality is prohibited from using it for deposits.”
The movement in New York is reflected across the country. In New Mexico, however, legislators have taken it one step further by introducing a bill that gives preferential treatment to local financial institutions, including credit unions. The philosophy behind the bill is that local institutions will turn around and loan money locally, stimulating the local economy.
According to the Clovis News Journal, the bill “requires the state’s finance and administration department to choose local banks and credit unions over out-of-state institutions…”
I applaud the fiscal responsibility behind choosing a financial institution that contributes to community investment without dipping into the pocket of taxpayers, but regulating where municipalities may or may not hold deposit accounts seems to be a 180-degree swing in the opposite direction.
Mellin says the bill in New York is geared to “open up the market” and allow credit unions to compete for municipal deposits. In that market, relationships with financial providers across the board would change as competition spurred more attractive pricing, fees, and rates. Will that competition be present in New Mexico? Has its similar-yet-more-aggressive bill gone too far, or is the opportunity for community development too large to pass up?
UPDATE: February 9, 2010
According to the Huffington Post New Mexico’s House of Representatives voted 65-0 to pass House Bill 66, which will channel as much as $5 billion in state funds to local financial institutions, including credit unions.
UPDATE: March 15, 2010
According to the Puget Sound Business Journal, beginning July 1, public entities such as city governments and school districts can deposit up to $100,000 with any of the state's 70 credit unions. Governor Chris Gregoire signed legislation last week that gives Washington state's credit unions access to more than $5.5 billion dollars in public deposits; previously only banks were allowed to hold such funds.