CUs look to Congress for larger loan limits

SEWARD — There is a fight between the banks and the credit unions, and the credit unions are turning to Washington, D.C., to change the game.

Bill Cheney, president and CEO of the Credit Union National Association, addressed current legislation at the Alaska Credit Union League’s annual meeting in May.

Cheney said credit unions rely on legislative and regulatory support to be successful. While examiners do play an important role in establishing and maintaining rules, he said there can be conflict between the examiners’ judgments and those of the managers.

“It’s your job as a credit union. Not the examiners’,” he said.

He said legal aid can help address the conflict between supervisory oversight and micromanaging while giving credit unions competitive options against the banks.

“The banks would like us not to have a vote. We want to have a vote but more importantly, we want to win a vote on this legislation,” he said.

One of the biggest bills out now is Senate Bill 509, sponsored by Sen. Mark Udall, D-Colo. It was introduced last year to amend the Federal Credit Union Act to more than double the capacity to make small business loans by raising the member business lending cap from 12.25 percent to 27.5 percent for qualifying credit unions. The bill, called the Small Business Lending Enforcement Act of 2011, is currently pending Senate floor action. Udall’s spokeswoman, Alex McCarthy, said Senate Majority Leader Harry Reid, D-Nev., promised it would make it to the floor.

Cheney said the bill could go through at any time.

The House has its own version in H.R. 1418. This is the Small Business Lending Enhancement Act of 2011 and would give certain credit unions the authority to make additional member loans. It has been referred to committee.

Alaska’s delegation has supported these actions. Sen. Mark Begich is a co-sponsor of S.B. 509 and Congressman Don Young co-sponsors H.R. 1418.

“As a small business owner, I understand how credit unions have stepped up for Alaska’s small businesses. Many small businesses look for $50,000 to $200,000 bridge loans from credit unions, after larger more traditional banks have said no, and I am proud to help them continue to assist small businesses,” Begich wrote in his newsletter.

Cheney believes there are between 58 and 64 senators that support this action. He believes more are needed for the ultimate goal of winning the vote. He said at least 24 more are undecided and therefore must be convinced. He said this includes Sen. Lisa Murkowski. However, he acknowledges her difficulty in this issue because of her father, former Gov. Frank Murkowski, had a history in banking.

Cheney said the banks are turning more of their attention to the House version and that’s a mistake on their part. He said if the Senate version passes, the credit unions would get more leverage and a louder voice than the House bill.

A study by the National Association of Federal Credit Unions states that around 10 percent of credit unions had to deny loans because of cap restrictions during the last 12 months. Around 13 percent had to enter into loan participation arrangements to stay within the cap.

Credit unions have reported that 44 percent of their portfolios are made up of loans less than $100,000, while these sized loans amounts make up less than 8 percent for banks. Business loans greater than $1 million make up 16 percent of the credit unions’ portfolios and 68 percent of bank portfolios.

Cheney said allowing more freedom to the credit unions is an economic boost, too. He said it’s discouraging to see so many people leaving the labor pool because the jobs aren’t there. The idea is that more lending freedom would help more businesses to grow and create those jobs.

“We have legislation saying it will allow credit unions to provide and addition $13 billion to small businesses in the first year, creating 140,000 jobs conservatively at no cost to the taxpayer,” Cheney said. “Who can argue with that?”

The banking industry argues against the bills. The Independent Community Bankers of America states the current MBL cap doesn’t prevent nonmember business loans. The current cap also already allows exceptions for loans less than $50,000, Small Business Administration loans up to $5 million and loans secured by the borrower’s primary residence.

Other arguments are that the House bill doesn’t expand small business credit and that both bills would only apply to a small number of the largest credit unions. Banking associations also point to the tax-exempt status of credit unions, and the ICBA states that the displacement of bank loans will affect the tax revenue and increase the deficit because banks pay taxes.

Cheney said the battle between the banks and credit unions has gotten more and more heated, and that it would make things easier to pair relief for the credit unions with, “things that the banks should reasonably support.”

“Banks aren’t lending and they don’t want us to lend either,” Cheney said.

He said the CUNA is not asking for unlimited lending capacity, but that the low cap keeps some credit unions out of the market and more credit unions are lending today so a possible cap would hurt small business owners who are doing business today.

He addressed the argument against credit unions already receiving what is perceived to be an unfair advantage in federal income tax exemption. He said the banks are still ahead and the credit unions’ 5 percent of the market share proves this.

Cheney also talked about legislation geared toward providing supplemental capital option.

House Bill 3993, introduced by Reps. Brad Sherman, D-Calif., and Peter King, R-N.Y., would allow credit unions to pursue outside sources of capital as long as it doesn’t change the member and ownership standards. Cheney said that while it was important to get it introduced, this legislation will most likely not move in this Congress.

A House bill called the Eliminate Privacy Notice Confusion Act was just introduced to prevent credit unions from having to send out annual privacy notices if they do not change their policies. CUNA strongly supports this bill.

A final legislative topic he addressed was the federal tax exemption law. He said that while there is no pending legislation that suggests this would go away, he said maintaining the tax exemption is always a top priority.

Jonathan Grass can be reached at jonathan.grass@alaskajournal.com.