Here we go again.
Saying that it would "expand the options for small businesses at no expense to taxpayers," Sen. Mark Udall (D-Colo.) last week reintroduced a measure to raise the cap on member business lending from 12.25% of assets to as much as 27.5% of assets.
"Simply by getting government out of the way, we can free up well over $10 billion and create more than 100,000 jobs in the first year alone. I look forward to working with my colleagues on both sides of the aisle to get this common-sense legislation passed," said Udall.
Though he introduced the measure as a standalone bill, it could be considered as part of a larger bill.
The bill has 13 co-sponsors: Sens. Barbara Boxer (D-Calif.), Sherrod Brown (D-Ohio), Susan Collins (R-Maine), Al Franken (D-Minn.), Kirsten Gillibrand (D-N.Y.), Patrick Leahy (D-Vt.), Joseph Lieberman (I-Conn.), Bill Nelson (D-Fla.), Jack Reed (D-R.I.), Charles Schumer (D-N.Y.), Olympia Snowe (R-Maine), Sheldon Whitehouse (D-R.I.), and Ron Wyden (D-Ore.).
Rep. Ed Royce (R-Calif.) plans to introduce a companion bill in that chamber "within the next few weeks," said his spokeswoman.
Eligible credit unions will be able to increase their small business lending to 27.5% of total assets, at a rate not to exceed 30% a year. Credit unions must be well-capitalized, be at or above 80% of the current cap, have five or more years of member business lending experience and be able to demonstrate sound underwriting and servicing. If a credit union’s net worth ratio falls below the well-capitalized requirement (currently 7%), it must stop making new business loans.
Currently, loans to businesses of $50,000 or more count toward the cap. CUNA and NAFCU have tried to raise that to $250,000 but that is not part of the Udall bill.
Though the credit union trade associations are strongly behind the measure, they will have to overcome the political clout of the banking lobby, which has made killing the bill a top priority.
Paul Merski, chief economist of the Independent Community Bankers of America, said this is an issue they feel adamant about because credit unions don’t have the expertise to increase their business loan portfolios.
American Bankers Association President/CEO Frank Keating recently told Credit Union Times that his group opposes the increase because it goes against the original purpose of credit unions.
"I think the purpose of credit unions to serve modest income people is a great purpose. If credit unions want to get in the hotel or golf course business, they should get bank charters," he said. [See full interview with Keating, page 8]
According to CUNA and NAFCU, if the cap were raised, credit unions could lend an additional $13 billion in the first year and create approximately 140,000 new jobs.
Approximately 2,500 credit unions offer business loans, according to the NCUA. CUNA contends that 350 credit unions are at or near the current cap of 12.25% of assets, which Congress set in 1998.
Udall introduced the same measure last year, and it came close to passing but was derailed by procedural and partisan maneuvering engineered in part by banking lobbyists.
This time will be different, said lobbyists for CUNA and NAFCU.
"We are closer than we’ve ever been, and we’ve won the policy argument," said CUNA Vice President for Legislative Affairs Ryan Donovan.
"This gives us momentum and shows the support we have," said NAFCU Vice President for Legislative Affairs Brad Thaler.
Both groups said they would lobby extensively in Washington and mount grassroots efforts to sway lawmakers.
The Udall bill’s language on member business is the same as last year’s, and is the result of extensive negotiations among the Treasury Department, the NCUA, CUNA, NAFCU and lawmakers. The Obama administration said it would only support raising the 12.25% cap–which was imposed on credit unions as part of the Credit Union Membership Access Act passed by Congress in 1998–if there are certain regulatory safeguards and if the NCUA takes a gradual approach. The administration wants to keep the limit at 12.25% for most credit unions but increase it for those that meet certain higher standards.
The legislation mandates that the NCUA implement a tiered approval process so that credit unions "gradually increase the amount of member business lending in a manner that is consistent with safe and sound operations." This process would be spelled out in rules that the agency must issue within six months after the bill is passed.
During negotiations last year, NCUA Chairman Debbie Matz wrote Treasury Secretary Tim Geithner promising that the agency would "take every appropriate step to enhance regulatory safeguards and assure that member business lending is done in a prudent and safe manner."
But Federal Reserve Chairman Ben Bernanke expressed concern during a hearing last February that "the banks would complain, obviously, that if credit unions are allowed to do everything banks can do, why are they tax favored?"