WASHINGTON -- Legislation was introduced in the House just prior to the congressional spring recess to expand credit union business lending authorities while making it easier for credit unions to participate in SBA guarantee programs.
House Small Business Committee Chair Nydia Vel?zquez (D-N.Y.) introduced the Credit Union Small Business Lending Act (H.R. 1849) March 29 to help credit unions' business lending endeavors. "Entrepreneurs must have access to capital to invest in their businesses and create jobs," Vel?zquez said. "By expanding the number of lenders supplying low-cost, low-interest rate loans to small businesses owners, we can help make sure access to capital programs are reaching entrepreneurs in communities across the country."
NAFCU Director of Legislative Affairs Brad Thaler explained, "This is something we've been talking with the chairwoman's staff about. She's been a strong supporter of credit unions and SBA...We're pleased to see the chairwoman's support on this bill and her commitment to getting credit unions involved."
Fewer than 2% of all credit unions in the U.S. offer SBA loans to their members. Actors Federal Credit Union CEO Jeff Rodman testified on behalf of CUNA recently before Vel?zquez's committee that CUNA's members are interested in obtaining 7(a) loans, but administrative burdens and increasing fees have prevented many of their member credit unions from participating.
Currently, the portion of business loans guaranteed by the SBA does not count against credit unions' 12.25% of assets business lending cap. Under the Vel?zquez bill, the non-guaranteed portion would also be exempt as well. Additionally, H.R. 1849 would create a credit union outreach program within SBA to assist credit union involvement in the 7(a) program and increase participation among credit unions. This would be followed up with an annual report by SBA to Congress on these efforts. At a minimum, the bill said the outreach program should simplify the 7(a) application process.
The legislation would also establish an 85% guarantee on member business loans made in underserved areas up to $250,000. The definition of an underserved area, an oft-debated issue between the credit unions and banks, would follow that included in Treasury's New Markets Tax Credit program or the Community Development Banking and Financial Institutions Act of 1994.
Finally, it clarifies existing law to allow credit unions to participate in SBA's 504 Certified Development Companies loan program and not run into compliance issues with NCUA's business lending regulations.
"The primary [technical issue] is the fact that SBA, particularly the 504 program, allows longer term loans than credit unions can normally give and it also almost requires--because of the secondary market participation--that there be a prepayment penalty," CUNA Vice President for Legislative Affairs Dean Sagar explained. "Credit unions are barred from having prepayment penalties in loans." The bill would exempt credit unions participating in SBA's 504 program from that restriction, allowing them instead to follow the regulations "where there are more flexible or lenient lending conditions than the credit unions in statute."
Sagar remarked about the legislation, "We've covered almost every problem other than eliminating the cap, which they obviously can't do in an SBA bill."
He added that the bill could come up for a hearing on access to the 7(a) program in May or June in combination with another related piece of legislation.
While credit union specific legislation introduced by the committee chair certainly demonstrates credit unions' political clout, there are sure to be forces working against them. American Bankers Association Senior Economist Keith Leggett stated, "Clearly we have a problem with this legislation because of how much it expands the credit union business lending authority."
He also questioned the purpose behind the legislation. "It's a competitive issue, yes, but also what we're saying is we don't think there's a deficiency of credit out there." Leggett pointed to recent polling by the National Federation of Independent Business that shows business credit as available as ever in recent years.
An NFIB spokesperson said the group has not taken a position on the credit union legislation.
Leggett ticked off ABA objections to each provision. Exempting the non-guaranteed portion of a credit union's SBA loan from their cap "really doesn't make any sense," he said. Leggett added that he had some concerns with how NCUA might find a way to tinker with the definition of underserved areas in the bill. "I don't have any faith that NCUA is going to be restrictive," he said. And, generally, he argued, it just moves credit unions further away from their mission of serving people of modest means.
To the contrary, NCUA Director of Public and Congressional Affairs John McKechnie said, "NCUA has evaluated H.R. 1849 and found no safety and soundness concerns or inconsistencies with current statutes. Furthermore, NCUA would view H.R. 1849, if enacted, as another vehicle through which credit unions could serve consumers in underserved communities."
Chairwoman Vel?zquez stated, "This legislation will help get more capital into the hands of small business owners. With so many people using credit unions today, it only makes sense that start-up businesses should be able to access financing through these same entities as well. By better using credit unions' ties to their communities, these access to capital programs can expand their impact and help grow more businesses."
"We are delighted to continue our work with Rep. Nydia Velazquez, particularly with this bill to give credit unions needed flexibility to become more effective providers of small business loans to their members," CUNA President and CEO Dan Mica said. "Importantly, this legislation goes a long way in helping to streamline involvement in the SBA lending program by credit unions, through recognition of their unique characteristics, and should encourage more credit unions to become involved in the program."
NAFCU Senior Vice President of Government Affairs Dan Berger followed up, "With introduction of CURIA and now this small business lending bill, Members of Congress are clearly sending a strong message that credit unions are the solution to take care of those in areas where other financial institutions are not." --firstname.lastname@example.org