WASHINGTON -- Bill Spearman, CEO of the $590 million Mid-HudsonValley Federal Credit Union, gave members of the House ofRepresentatives Small Business Committee a credit union perspectiveon the use of credit cards to finance small-business start ups andCUs' role in small-business lending.

Spearman, testifying at the April 3 hearing, described how hiscredit union had to cope with widespread job losses among itsmembers, primarily IBM employees at the time, when the local plantshut down in 1995. Part of the credit union's efforts includedproviding its members with capital to transition to new careers,many as budding entrepreneurs, Spearman said in his preparedcomments.

"Credit card lending plays an integral role in providing muchneeded capital for our small-business members to grow theircompanies," Spearman wrote in his prepared testimony. "Currently,61 Mid-Hudson business members have business credit card accountswith our credit union. This represents a total credit limitavailable of $600,000, of which $200,000 is in carried balances.The largest credit limit among these 61 businesses is $30,000.Absent the capital provided through credit cards, these businessessurely would not be as successful as they are today andunemployment would likely be higher."

Spearman, who serves on NAFCU's Education Committee, also tookthe opportunity to attack credit unions' member business lendingcap. "Even though credit unions have been able to grow in theirability to help small businesses, many want to do more," Spearmansaid at the hearing. "Unfortunately, many federal credit unionsface an impediment to helping their small-business members due tothe arbitrary member business lending cap that was placed on themin 1998 as part of the Credit Union Membership Access Act. Thisarbitrary cap is set at the lesser of 1.75 times the net worth of awell-capitalized credit union or 12.25% of total assets."

Representative Steve Chabot (R-Ohio) asked how lifting the capwould help with small-business lending overall. Spearman said hisCU was dangerously close to hitting that cap, particularly sincethere is no secondary market in small-business loans as there isfor mortgages. He noted as well that the cap limits his CU'sability to offer credit cards with smaller business credit limitssince credit limits in the $50,000-$100,000 range count against thecap whether the credit is used or not.

Representative Charlie Gonzalez (D-Texas) reminded the witnessesthat the goal of the hearing was to try to assess why the use ofcredit cards to fund small-business efforts was growing and whetherthat was a good thing.

"I am sure with the community bankers and credit unions herebefore us, we are hearing about the best of credit card practices,"Gonzalez said. "We should probably have representatives here fromsome of the big credit card issuers to get a more completeview."

Gonzalez pointed out that many circumstances counted againstsmall businesses being offered regular loans. He asked if thecredit unions and small banks spent as much or more time promotingsmall-business loans as they do promoting credit cards.

Spearman said that in his CU's experience, most small-businesscardholders use their cards more as transaction vehicles than aslines of credit, much in the same way that many use their cars astheir offices. Most of the small-business credit card holders payoff their cards every month making the use of the cards essentiallyan interest-free loan.

Spearman also advocated streamlining the Small BusinessAdministration lending process in addition to raising the cap. Headded that the SBA has generally withdrawn from many of itseducation and promotion efforts.

Representative Brad Ellsworth (D-Ind.) asked Spearman andWilliam Rosacker, president of United Bankers' Bank, ofBloomington, Minn. how the each viewed CURIA. Rosacker testified onbehalf of the Independent Community Bankers of America.

"I don't want to start a fight," said Ellsworth, "between thetwo gentlemen on the end [of the witness table,] but does theCommunity Bankers Association have a position on CURIA? I know whenI talk to bankers and credit unions back home the topic is asomewhat sticky subject."

Ellsworth's question drew laughter and prompted CommitteeChairman Nydia Velazquez (D-N.Y.) to ask Ellsworth, "What are youdoing?"

Rosacker responded that the ICBA opposed a CU expansion ofpowers before he passed the microphone to Spearman who reiteratedNAFCU's support for the bill, stating that he "respected communitybankers efforts and what they do for their communities."

Spearman also discussed the use of personal credit cards bymembers to finance their small-business efforts. With education,Spearman said, the members could probably find an empathetic ear atthe CU if they would come in and discuss their small-businesscredit needs.

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