LRB-0636/3
RJM:cjs:pg
2003 - 2004 LEGISLATURE
January 22, 2003 - Introduced by Representatives Jeskewitz, Plale, Montgomery,
Richards, Gard, Hebl, Kaufert, Balow, Owens, Turner, Hundertmark,
Kerkman, Huebsch, Pettis, Gronemus, Lassa, Rhoades, F. Lasee, Gunderson,
Olsen, J. Fitzgerald, Friske, Kestell, M. Lehman, Ladwig, Hahn,
Loeffelholz, McCormick, Ward, Freese, Jensen, Petrowski, Shilling, D.
Meyer, Pocan, Huber, Kreibich, Ziegelbauer, Townsend, Grothman,
Wieckert, Stone, Gielow, Towns, Van Roy, Johnsrud, Seratti, A. Williams,
Krawczyk, Pope-Roberts, Lothian, Ott, Vrakas, Ainsworth, Boyle, Coggs,
Hines, Suder, Vukmir, J. Lehman, Young, Musser, Wasserman, Nass, Colon,
Powers, Staskunas, Sinicki, Plouff, Underheim, Bies, Zepnick, Sherman,
Weber, Albers, M. Williams, Vruwink, Nischke, LeMahieu and Cullen,
cosponsored by Senators Schultz, Moore, Panzer, Leibham, Brown, Hansen,
Kedzie, S. Fitzgerald, Darling, Kanavas, Carpenter, A. Lasee, Breske, Stepp,
Zien, Wirch, Welch, Risser, Decker, Roessler, M. Meyer, Lazich, Cowles,
Reynolds, Ellis, George and Harsdorf. Referred to Committee on Financial
Institutions.
AB2,2,5
1An Act to repeal 186.235 (16) (b), 186.41 (1) (d), 186.41 (6) (b) and 186.41 (8);
2to renumber 186.41 (6) (a);
to renumber and amend 186.02 (2) (d), 186.11
3(4) (a), 186.113 (11), 186.235 (16) (a), 186.41 (1) (a) and 186.41 (1) (c);
to amend
493.01 (1m), 186.01 (2), 186.02 (2) (a) 1., 186.02 (2) (b) 2., 186.02 (2) (c), 186.06
5(4), 186.11 (4) (title), 186.11 (4) (c), 186.113 (1), 186.113 (1m) (a) (intro.), 186.113
6(6) (b) and (c), 186.22 (12m), 186.235 (7) (a) (intro.), 186.36, 186.41 (title), 186.41
7(2) and (3), 186.41 (4) (intro.), (a) to (d) and (f), 186.41 (5) (a), (b), (c) and (cr),
8220.04 (9) (a) 2. and 409.617 (1) (c);
to repeal and recreate 186.11 (4) (b) and
9186.17 (1); and
to create 186.02 (2) (b) 2m., 186.02 (2) (d) 2., 186.07 (3m), 186.11
10(4) (a) 1., 186.11 (4) (bd) and (bh), 186.113 (11) (b), 186.113 (24), 186.113 (25),
11186.20, 186.235 (7) (c), 186.235 (7m), 186.235 (16m), 186.45, 186.80, 220.14 (5)
12and chapter 222 of the statutes;
relating to: credit union membership, powers,
13operation, and regulation; the application of agriculture, trade, and consumer
1protection statutes to credit unions; the creation of a new type of financial
2institution; the powers of and requirements applicable to the new type of
3financial institution; the discharge of governmental liens under the Uniform
4Commercial Code; providing an exemption from emergency rule procedures;
5granting rule-making authority; and providing a penalty.
Analysis by the Legislative Reference Bureau
Credit unions and universal banks
This bill makes numerous changes to the chapter that governs the formation,
operation, and regulation of credit unions in this state and creates a new type of
financial institution called a universal bank. The major provisions relating to credit
unions and universal banks include the following:
Credit Unions
Credit union membership
Under current law, credit union membership is open to groups having a
common bond of occupation or association; residents within a well-defined
neighborhood, community, or rural district; employees of related industries or
industries that operate within a well-defined neighborhood, community, or rural
district; members of certain fraternal, labor, educational, or other similar
organizations; and credit union employees. Furthermore, credit union membership
is open to the immediate family of all individuals who are qualified for membership.
Current law defines "members of the immediate family" as any relative of a member
or of a member's spouse who is living with the member and as the member's spouse,
parents, stepchildren, and children. In addition, current law permits a credit union
to accept an organization or association as a member if a majority of the members
of the organization or association are eligible for membership.
This bill expands the pool of individuals, organizations, and associations that
are eligible for membership in a credit union. Under this bill, credit union
membership is open to individuals who reside or are employed in well-defined,
contiguous neighborhoods and communities, except that, if the Office of Credit
Unions determines, subsequent to a merger, that it is inappropriate to require the
members of a credit union to reside or be employed in contiguous neighborhoods and
communities, the requirement that these neighborhoods and communities be
contiguous does not apply. In addition, membership is open to individuals who reside
or are employed in well-defined, contiguous rural districts or multicounty regions.
This bill also opens credit union membership to any organization or association
that has a business location within any geographic limits of the credit union's field
of membership. This bill also permits a credit union to accept any organization or
association as a member, if a majority of the directors, owners, or members of the
organization or association are eligible for membership. Furthermore, this bill
repeals the definition of "members of the immediate family" contained in current law
and instead requires a credit union's bylaws to specify the conditions that determine
eligibility for membership.
Credit union investments and credit union service organizations
Under current law, a credit union may invest up to 1.5% of its total assets in an
organization that is organized primarily to provide goods and services to credit
unions, credit union organizations, and credit union members (credit union service
organization). Under current law, a credit union may invest in a credit union service
organization that is a corporation. Current law also specifies the types of goods and
services that a credit union service organization may provide. These goods and
services include, among other things, credit card services, automated teller services,
financial planning, and insurance sales. However, current law is ambiguous as to
whether the percentage limitation on a credit union's investment in credit union
service organizations applies to the aggregate total of all credit union investments
in credit union service organizations or to a credit union's investment in each
particular credit union service organization.
This bill expands the types of organizations in which a credit union may invest.
Under this bill, a credit union may invest in a credit union service organization that
is a corporation, limited partnership, limited liability company, or any other entity
that is permitted under state law and that is approved by the Office of Credit Unions.
This bill also provides that the Office of Credit Unions may permit a credit
union to invest greater than 1.5% of credit union assets in a credit union service
organization. In addition, this bill clarifies that the limitation on a credit union's
investment in credit union service organizations applies to the aggregate total of all
credit union investments in credit union service organizations.
This bill also expands the types of services that a credit union service
organization may provide. Under this bill, a credit union service organization may
provide the following types of services, among others, related to the routine daily
operations of credit unions: 1) checking and currency services; 2) clerical,
professional, and management services; 3) consumer mortgage loan origination
services; 4) electronic transaction services; 5) tax preparation services; 6) services
regarding the development and administration of individual retirement accounts,
specified retirement plans for self-employed individuals, and personnel benefit
plans; 7) financial counseling services, including estate planning; 8) fixed asset
services; 9) insurance brokerage or agency services; 10) services with regard to
leasing real property owned by the credit union service organization or personal
property; 11) loan support services; 12) record retention, security, and disaster
recovery services; 13) securities brokerage services; 14) shared credit union branch
operations; 15) student loan origination services; 16) travel agency services; 17) trust
and other fiduciary services; 18) real estate brokerage services. The bill further
specifies additional services that are generally related to the 18 listed above. In
addition, the bill authorizes the Office of Credit Unions to expand the list of services
that are related to the routine daily operations of credit unions that a credit union
service organization may provide. The bill also permits a credit union service
organization to provide any of these services through an investment by the credit
union service organization in a third-party service provider, subject to certain
limitations.
Credit union powers
Currently, to the extent permitted by federal law, a credit union may act as
trustee of member tax deferred funds and as a depository for member deferred
compensation funds. This bill expands this authority, allowing a credit union, to the
extent permitted by federal law, to act as a trustee or custodian of member tax
deferred retirement funds, individual retirement accounts, medical savings
accounts, and other employee benefit accounts or funds. In addition, this bill allows
a credit union, to the extent permitted by federal law, to act as a depository for
member qualified and nonqualified deferred compensation funds.
Under current law, funds held in trust under a burial agreement (commonly
known as a funeral trust) must be deposited in a bank, savings bank, savings and
loan association, or credit union. This bill clarifies that a credit union may accept
these deposits if the deposits are made by a credit union member.
Currently, a federal credit union is permitted to accept deposits from
nonmembers if the federal credit union is designated as a low-income credit union
by the National Credit Union Administration. To obtain such a designation, a federal
credit union must serve predominantly low-income members. This bill permits a
state credit union to accept deposits from any person if the state credit union satisfies
the federal requirements for designation as a low-income credit union and files a
statement with the Office of Credit Unions agreeing to be bound by requirements and
conditions that are substantially identical to those imposed on federally designated
low-income credit unions.
This bill also permits credit unions to sell insurance products.
Branch offices of Wisconsin credit unions
Under current law, if the need exists, a credit union may establish branch
offices within this state or no more than 25 miles outside of this state. In addition,
if certain conditions are met, a credit union may establish a limited service office
outside of this state to serve members of the credit union. A credit union seeking to
establish a branch office or limited service office must first obtain the approval of the
Office of Credit Unions.
This bill expands the authority of a credit union to establish branch offices.
Under this bill, with the permission of the Office of Credit Unions, a credit union may
establish branch offices anywhere inside or outside of this state. This bill repeals the
authority for a credit union to establish a limited service office, although a credit
union may continue to operate a limited service office that is in existence on the
effective date of this bill.
Branch offices of non-Wisconsin credit unions
Current law does not specifically permit a credit union organized under the
laws of another state (non-Wisconsin credit union) to establish a branch office in this
state. This bill specifies that a non-Wisconsin credit union may establish a branch
office in this state if the Office of Credit Unions finds that certain conditions apply
to the non-Wisconsin credit union. For example, the non-Wisconsin credit union
must be organized under laws similar to ch. 186, must be financially solvent, and
must have federal insurance for member deposits. In addition, the Office of Credit
Unions must find that credit unions organized under the laws of this state are
allowed to do business under similar conditions in the home state of the
non-Wisconsin credit union.
Interstate mergers and acquisitions of credit unions
Under current law regarding interstate mergers and acquisitions of credit
unions, a credit union organized in this state may only merge with, acquire, or be
acquired by a state or federal credit union that has its principal office in Illinois,
Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, or Ohio. This bill repeals
this geographic limitation on mergers and acquisitions of credit unions and, thus,
expands the number of credit unions that are eligible to merge with, acquire, or be
acquired by a credit union organized in this state.
Credit union reports and financial privacy
Current law contains several credit union reporting requirements and, with
certain exceptions, requires the Office of Credit Unions annually to examine the
records and accounts of each credit union. The employees of the Office of Credit
Unions and members of the Credit Union Review Board must keep information
obtained in the course of examinations confidential, with limited exceptions. A
violation of this confidentiality requirement is subject to a forfeiture of up to $200.
This bill expands the confidentiality requirement to also include information
contained in certain reports that a credit union provides to the Office of Credit
Unions. In addition, this bill specifies that, with certain exceptions, any employee
of the Office of Credit Unions or member of the Credit Union Review Board who
discloses any information about the private account or transactions of a credit union
or who discloses any information obtained in the course of an examination is subject
to a fine of not less than $100 nor more than $1,000, imprisonment for not less than
six months nor more than three years, or both, and may be required to forfeit his or
her office or position.
This bill also requires credit unions to comply with certain federal laws relating
to customer financial privacy and requires the Office of Credit Unions to examine
credit unions for compliance with these federal laws.
Board of directors action by unanimous, written consent
Currently, if an action is required or permitted to be authorized at a credit union
board of directors meeting, the directors must either meet in person or via certain
approved communications media to authorize the action. This bill permits an action
to be authorized without a meeting, if that action is authorized by all directors and
is evidenced by one or more written statements, signed by each director, describing
and consenting to the action.
Other credit union changes
Under current law, a credit union is required to semiannually determine its
gross income and transfer amounts to its reserve account, which is an account
established by the credit union to cover losses. The National Credit Union
Administration determines the required amount of the transfer. This bill repeals the
requirement that a credit union determine its gross income and semiannually
transfer amounts to its reserve account. Under this bill, a credit union must
establish and maintain a reserve account and must transfer amounts to the reserve
account as required by the National Credit Union Administration.
Under current law, the Office of Credit Unions must conduct an annual
examination of each credit union, unless the Office of Credit Unions accepts an audit
report of the condition of the credit union that satisfies certain conditions. This bill
requires the Office of Credit Unions to conduct an examination of each credit union
at least once every 18 months, and repeals the authority of the Office of Credit Unions
to accept an audit report.
Current law specifically requires any officer or employee of a credit union who
sells credit life insurance or credit accident or sickness insurance on behalf of the
credit union to pay to the credit union all commissions received from the sale. This
bill clarifies that an officer or employee of a credit union must pay to the credit union
all commissions received from the sale of any authorized insurance product sold on
behalf of the credit union.
This bill also creates a crime for knowingly falsifying certain credit union
reports or statements. Any person who commits this crime may be fined not less than
$1,000 nor more than $5,000 or imprisoned for not less than one year nor more than
15 years or both.
Under current law, credit unions are subject to the provisions of chs. 93 to 100
(agriculture, trade, and consumer protection statutes) that apply to businesses
generally. Banks, savings banks, and savings and loan associations are specifically
exempted from the definition of "business" that applies in the agriculture, trade, and
consumer protection statutes. This bill specifically exempts credit unions from this
definition.
Universal banks
Generally
Under current law, the Division of Savings Institutions regulates state savings
banks and state savings and loan associations, and the Division of Banking regulates
state banks. This bill allows a state savings bank, state savings and loan association,
or state bank (financial institution) to apply to the Division of Banking to become
certified as a universal bank. If certified as a universal bank, a financial institution
may exercise certain powers, in addition to those that are granted under the statutes
under which the financial institution is organized. A universal bank retains its
status as a savings and loan association, savings bank, or state bank and remains
subject to existing regulatory and supervisory requirements, except to the extent
that these requirements are inconsistent with the requirements applicable to
universal banks. Universal banks are subject to the following provisions:
Certification of universal banks
A financial institution may apply to become certified as a universal bank by
filing a written application with the Division of Banking. In order to be certified as
a universal bank, the financial institution must meet all of the following
requirements: 1) the financial institution must have been in existence and
continuous operation for at least three years; 2) the financial institution must be
"well-capitalized," as defined in federal law; 3) the financial institution must not
exhibit moderately severe or unsatisfactory financial, managerial, operational, and
compliance weaknesses; 4) the financial institution must not have been the subject
of any enforcement action within the 12 months preceding the application; 5) the
most recent evaluation of the financial institution under the federal Community
Reinvestment Act must rate the financial institution as "outstanding" or
"satisfactory" at helping to meet the credit needs of its entire community; and 6) the
most recent report received by the financial institution evaluating the financial
institution's compliance with certain federal laws relating to customer privacy must
indicate that the financial institution is in substantial compliance with these federal
laws. If these requirements are met, the Division of Banking must certify the
financial institution as a universal bank. If a universal bank fails to maintain
compliance with these requirements, the Division of Banking must limit the
universal bank's exercise of universal banking powers. In addition, a universal bank
may be decertified if it fails to maintain compliance with these requirements. With
the approval of the Division of Banking, a universal bank may also elect to terminate
its certification. As a precondition to elective decertification, the universal bank
must terminate the exercise of all universal banking powers.
Organization and regulation of universal banks
A financial institution that is certified as a universal bank remains subject to
all of the requirements and duties, and remains able to exercise all of the powers, that
applied to the financial institution prior to its certification as a universal bank,
except to the extent that such requirements, duties, and powers are inconsistent
with the requirements, powers, and duties of universal banks. After a financial
institution becomes certified as a universal bank, the Division of Banking is
responsible for establishing the capital requirements applicable to the universal
bank.
A universal bank continues to operate under the articles of incorporation and
bylaws that were in effect prior to its certification as a universal bank, and these
articles and bylaws may be amended in accordance with the law governing savings
banks, savings and loan associations, or state banks, whichever is applicable to the
financial institution. Current law generally prohibits a savings bank or a savings
and loan association from using the term "bank" in its corporate name without also
using the term "savings." Notwithstanding these provisions, the bill allows any
financial institution that becomes certified as a universal bank to use the term
"bank" in its corporate name without using the word "savings," subject to certain
limitations relating to the distinguishability of the name.
Under current law, the Division of Banking regulates mergers and acquisitions
of state banks, and the Division of Savings Institutions regulates mergers and
acquisitions of savings banks and savings and loan associations. Under the bill, the
Division of Banking assumes responsibility for reviewing and approving the mergers
and acquisitions of all financial institutions that have been certified as universal
banks, including savings banks and savings and loan associations. The standards
to be used by the Division of Banking in reviewing a merger or acquisition of a
universal bank generally track the standards currently applicable to the various
financial institutions that may become certified as universal banks, except that
universal banks may generally acquire or merge with any type of financial
institution.
Powers of universal banks
The bill expands the powers of a financial institution that becomes certified as
a universal bank. Currently, savings banks, savings and loan associations, and
banks have differing powers under both state and federal law. Under the bill, a
universal bank is authorized to engage in any activity authorized for any savings
bank, savings and loan association, or state bank beginning on the first day of the
third month beginning after the bill's publication. In addition, the bill specifically
permits a universal bank to exercise all of the following powers:
1) Federal powers: Under the bill, a universal bank may exercise all powers
that may be exercised directly by a national bank, a federally chartered savings and
loan association, or a federally chartered savings bank. In addition, a universal bank
may exercise through a subsidiary all powers that a subsidiary of these federal
financial institutions may exercise. The Division of Banking must approve the
initial exercise of a federal power by a universal bank under these provisions, but
thereafter any universal bank generally may exercise that power. The Division of
Banking may, however, require a universal bank to exercise a federal power through
a subsidiary of the universal bank to limit the risk exposure of the universal bank.
2) Lending powers: Under current law, the lending powers of a financial
institution depend on whether the financial institution is organized as a savings
bank, savings and loan association, or state bank. The lending powers granted to
universal banks under the bill are most similar to the lending powers granted to state
banks under current law. Current law imposes some restrictions on the types and
purposes of loans that savings banks and savings and loan associations may make.
Under the bill, a universal bank may make, sell, purchase, arrange, participate in,
invest in, or otherwise deal in loans or extensions of credit for any purpose. Like state
banks, the limitations imposed on a universal bank's lending generally focus on the
total amount of liabilities of any one lender at any one time. Although the limit varies
depending on the lender and on the type of security pledged for the loan, the general
rule is that the total liabilities of any one person to a universal bank may not exceed
20% of the universal bank's capital.
The lending limits for universal banks are generally the same as for state
banks, except that universal banks are granted additional authority to lend, through
the universal bank or its subsidiaries, an aggregate amount to all borrowers from the
universal bank and all of its subsidiaries not to exceed 20% of the universal bank's
capital. Generally, however, the loans to any one borrower made under any lending
authority of the universal bank may not exceed 20% of the universal bank's capital.
Loans made under this additional authority are not subject to rules regarding bad
debts or classification of losses for a period of two years from the date of the loan. This
additional authority may be suspended by the Division of Banking. Among the
factors that may be considered by the Division of Banking in suspending this
authority are a universal bank's capital adequacy, management, earnings, liquidity,
and sensitivity to market risk. The bill prohibits a universal bank, in determining
whether to make a loan or extension of credit, from considering any health
information obtained from the records of an affiliate of the universal bank that is
engaged in the business of insurance, unless the person to whom the health
information relates consents.
3) Investment powers: A universal bank may purchase, sell, underwrite, and
hold investment securities, consistent with safe and sound banking practices, in an
amount up to 100% of the universal bank's capital. Investment securities include
commercial paper; banker's acceptances; marketable securities in the form of bonds,
notes, and debentures; and similar instruments. A universal bank may not invest
greater than 20% of its capital in any one obligor or issuer. A universal bank may
purchase, sell, underwrite, and hold equity securities, consistent with safe and
sound banking practices, in an amount up to 20% of the universal bank's capital,
unless the Division of Banking approves a greater percentage. A universal bank may
also invest in certain housing properties and projects, except that the total
investment in any one project may not exceed 15% of the universal bank's capital and
except that the total amount invested in housing properties and projects may not
exceed 50% of the universal bank's capital. A universal bank may take equity
positions in profit-participation projects, including projects funded through loans
from the universal bank, in an aggregate amount not to exceed 20% of the universal
bank's capital. The Division of Banking may suspend a universal bank's authority
to invest in profit-participation projects.
The bill permits a universal bank to invest without limitation in certain types
of securities, including: 1) obligations of certain federal agencies or federally
chartered corporations and associations; 2) deposit accounts or insured obligations
of insured financial institutions; 3) securities of certain business development
corporations and urban renewal investment corporations; 4) certain securities of
bank insurance companies; 5) securities of certain corporations operating automated
teller machines; 6) securities of service corporation subsidiaries of the universal
bank; 7) advances of federal funds; 8) risk management instruments, including
financial futures transactions, financial operations transactions, and forward
commitments, but solely for the purpose of reducing, hedging, or otherwise
managing its interest rate risk exposure; 9) securities of subsidiaries exercising
certain fiduciary powers; and 10) securities of certain agricultural credit
corporations. A universal bank may invest in other financial institutions. The
investment powers of a universal bank may be exercised directly or indirectly
through a subsidiary, unless the Division of Banking requires the investment to be
made through a subsidiary to limit the risk exposure of the universal bank. The bill
contains specific provisions governing the purchase by a universal bank of its own
stock and of stock in banks and bank holding companies.
4) Deposit and trust powers: The bill permits a universal bank to establish the
types and terms of deposits that the universal bank will solicit and accept. A
universal bank may pledge its assets as security for deposits. With the approval of
the Division of Banking, a universal bank may securitize its assets for sale to the
public, subject to any procedures established by the Division of Banking. A universal
bank may exercise safe deposit powers and have a lien for its safekeeping charges
on the contents of property accepted for safekeeping. If these charges remain unpaid
for two years or if property accepted for safekeeping is not called for within two years,
a universal bank may sell the property at public auction. The bill authorizes a
universal bank to exercise the same trust powers that trust company banks are
permitted to exercise under current law.
5) Incidental and related powers: Under the bill, a universal bank may exercise
all powers necessary or convenient to effect the purposes for which the universal
bank is organized or to further the businesses in which the universal bank is lawfully
engaged. Current law does not have a similar provision.
In addition to these necessary or convenient powers, the bill allows a universal
bank to engage in activities that are reasonably related or incident to the purposes
of the universal bank. With certain exceptions, a universal bank may engage in these
activities either directly or indirectly through a subsidiary. Under the bill, any
activity permitted under the federal Bank Holding Act satisfies the reasonably
related or incidental criterion. The bill also contains a list of specific activities that
meet the reasonably related or incidental criterion. The listed activities include: 1)
business and professional services; 2) data processing; 3) courier and messenger
services; 4) credit-related activities; 5) consumer services; 6) real estate-related
services; 7) insurance services, other than insurance underwriting; 8) securities
brokerage; 9) investment advice; 10) securities and bond underwriting; 11) mutual
fund activities; 12) financial consulting; 13) tax planning and preparation; 14)
community development and charitable activities; and 15) debt cancellation
contracts.
A universal bank may also engage in activities that the Division of Banking
determines are reasonably related or incidental to these listed activities. In addition,
the Division of Banking may determine that other activities are reasonably related
or incidental activities.