Legislation now making its way through Congress would ease the way for credit unions to make loans to their business members. In the Senate, S. 2231 would enable insured credit unions that meets certain safety and soundness criteria to make member business loans up to 27.5 % of their total assets. The current limit is 12.25 percent. The bill was introduced by Senator Mark Udall (D-CO) in March 2012 and boasts 21 cosponsors, according to the Library of Congress.
Over in the House, H.R. 1418, the Small Business Lending Enhancement Act of 2011 also would raise the member business loan limit from 12.25 to 27.5 percent of a credit unionâ€™s assets. Representative Edward Royce (R-CA) introduced the bill in October of 2011; it currently has 142 co-sponsors.
On Tuesday, the Credit Union National Association (CUNA), a trade association, said that more than 500 credit union and small business supporters were headed to Washington to lobby officials to approve the bills â€“ the third such visit, CUNA said. CUNA also said that the vote on the legislation is expected before Congress adjourns for the year.
CUNA estimates that the passage of these bills would allow credit unions to lend an additional $13 billion to small businesses. That would create more than 140,000 new jobs in just one year.
While many legislators appear to hold small businesses and job creation in high regard, the bills have generated opposition from others in the financial services industry. Also on Tuesday, the Independent Community Bankers of America (ICBA) released its own study showing that boosting credit unionsâ€™ abilities to make business loans would do little to improve access to credit, but would introduce risks to the financial system.
For starters, greater lending by credit unions, which are tax exempt, would cut into federal revenues, the ICBA said. Thatâ€™s because had banks made the loans, they would have to pay taxes on the transactions. The ICBA also stated that credit unions with ratios of business loans to assets that topped 10 percent accounted for 14.7 percent of failed credit unions, even though they made up only 2.7 percent of credit unions overall. In addition, most credit unions are far from their current business lending limits, calling into question the need for the proposed legislation. â€śICBA continues to oppose any legislation to raise the credit union business-lending cap, which would benefit a select few credit unions while harming taxpaying community banks,â€ť the organization said in a statement.
The credit unions are ready with their own response, as outlined in a 2011 CUNA report: Commercial Banks and Credit Unions: Facts, Fallacies, and Recent Trends. The report points out that as of late 2011, banks held more than 14 times the assets of credit unions: $13.8 trillion versus $963 billion. In fact, the four largest banking entities each are bigger than the entire credit union industry.
To claims that credit unions are encroaching on community banksâ€™ market, the CUNA report indicates that big banks may actually be the responsible ones. Total assets held by the 100 largest banking institutions more than quintupled between 1992 and 2011, rising from $2 to $10.9 trillion. While credit union assets did grow by 300-plus percent, the numbers are much smaller: from $.3 trillion in 1992, assets rose to $1 trillion in 2011. Over the same period, assets held by smaller banking institutions rose from $2.6 to $2.9 trillion, a jump of about 11 percent.
Finally, CUNA notes that credit unions are simply filling a void created as banks pulled back from both consumer and business lending. For instance, while bank lending to businesses dropped by 2.2 percent between December 2007 and September 2011, credit union business lending jumped 42.3 percent.