WASHINGTON -- Whether the Credit Union Regulatory Improvements Act (H.R. 1537) gains more momentum if a pivotal member business lending provision was scrapped still remains a relatively quiet debate.
Under CURIA, the current limit on credit union member business loans would increase from 12.25% to 20% of assets. NCUA would also be permitted to increase the minimum loan amount for defining a member business loan from $50,000 to $100,000, which CUNA, NAFCU, and others have said would open a significant source of credit to small businesses. At press time, 143 legislators had thrown their support behind CURIA.
CUNA's support for raising the cap on member business lending would help credit unions not only with regulatory relief to improve productivity and efficiency in the marketplace but would also translate into better and lower-cost service to members. NAFCU also remains firm behind the provision as well.
"Regarding CURIA, our position has not changed. NAFCU fully supported the bill as introduced and continues to work diligently to secure additional cosponsors," said Jay Morris, senior vice president of communications at NAFCU.
Whether removing the member business lending cap provision from CURIA could bolster the bill's support is clearly debatable. For the "average" credit union, the cap issue is probably not a major concern, said Larry Middleman, president/CEO of CU Business Group, which serves more than 240 credit unions in 31 states.
"Looking at the industry as a whole, there a lot of credit unions that are not close to that 12.25% cap," Middleman said. "I'm taking an educated guess here but there are probably a couple hundred credit unions that have major cap issues."
The flip side for those credit unions bumping up against the cap is there are ways to improvise, Middleman assured. Waivers obtained through NCUA and state regulators are one choice as are loan participations. NCUA regulations permit credit unions to buy up to a 90% participation in nonmember loans that were originated by other credit unions. The originating credit union is required to retain at least 10% of the loan.
According to a study from the Competitive Enterprise Institute, a Washington-based think tank, unlimited credit union member business lending should be allowed as a means to bolster the United States' economy in general and its small businesses in particular. The study also noted that the 20% member business lending cap increase is too modest to provide any impact for credit unions or small businesses.
Bill Beardsley, president of Michigan Business Connection, LC said while he can't speak to the political implications of CURIA's fate without the member business lending cap, he compared the threshold to driving.
"I think of the cap like a speed limit," Beardsley said. "It's not necessary for great drivers, but on the whole it might save lives."
That said, an "easy exception process" for qualified and experienced member lending credit unions might be needed, Beardsley said, adding he doesn't think there should be a cap for "the most qualified" credit unions. By most qualified, he said he meant those that have been successfully engaged in commercial lending for 10 or more years.
"In many communities, credit unions are the only locally-owned financial institution," Beardsley said. "Their competitiveness must be enhanced and preserved."
Founded in 2004, MBC provides commercial underwriting and loan origination services to credit unions throughout Michigan. One of its founding credit unions came aboard because it had reached the 12.25% cap and was looking for management alternatives, Beardsley said. That credit union has since used MBC to help syndicate business loans as a means for cap relief. For the most part, cap management has not been an issue for MBC's clients.
In addition to waivers and loan participations, Beardsley reminded that NCUA has approved raising the cap for non-member business loans. Collaborating with CUSOs is another resource, he pointed out.
Still, Beardsley emphasized that caps of all kinds are "constraining and obtrusive and create regulatory burdens."
"I believe a non-negotiable cap places credit unions at a disadvantage because it limits the business success of their members," Beardsley said. "Banks don't have caps and there some credit unions that are doing business lending just as good if not better than banks."