Tennessee has become the second state in the last two months toconsider a proposed law that would give state-chartered creditunions the option to compensate board members.

The proposed law has been recently approved by committees in theTennessee House and Senate. House Bill 258 will be introduced to the state's House ofRepresentatives on March 7. Senate Bill 587 has yet to be scheduled for considerationbefore the full Senate.

House and Senate committees in the state of Washington havealso recently approved bills that would give state-chartered creditunions the choice to compensate board members.

The Washington Senate unanimously approved its version of thebill Feb. 26. The Washington House version of the bill may beintroduced for consideration before the full House next week, saidDemocratic Rep. Cindy Ryu.

Current Tennessee law allows credit unions to reimburse boardmembers or members of credit or supervisory committees for any lossof (job) earnings caused by time spent in the service of the creditunion in an amount that the board of directors may determine.

The proposed bills, however, would provide an alternative tothis reimbursement by compensating board members if the followingconditions are met:

• Adopt a resolution that the credit union requires expertiseamong board members for the prudent management of operations,
• Pay elected board members only after the resolution is adoptedby the board,
• Create a policy governing the participation and attendance ofboard members to receive compensation, and,
• Report board members' compensation as a specific expense itemin the credit union's annual report.

The proposed legislation does not allow compensation for memberswho sit on a credit or supervisory committee.

“I think credit unions are a very valuable part of our financialfabric, and I say that as an employee of a bank,” RepublicanTennessee Sen. Jack Johnson said during a committee hearing lastmonth.

He also is the prime sponsor of the Senate bill. Johnson is asenior vice president and financial adviser for Pinnacle FinancialPartners that serves Knoxville, and central Tennessee, includingNashville.

Because of the growth and the increasing complexity of thefinancial services industry and the fact that there are largecredit unions responsible for loans and deposits worth hundreds ofmillions of dollars, Johnson said it is perfectly reasonable forcredit unions to provide compensation in order to attract a highercaliber of board members.

However, Johnson noted that the proposed bill would not requirecredit unions to pay their board members.

David Wilson, executive vice president of the Tennessee CreditUnion League in Chattanooga, said the league's board supports theproposed legislation.