NCUA Chairman Debbie Matz is reiterating her support for raising the cap on member business lending and on Thursday promised lawmakers that her agency would beef up its enforcement to manage the additional risks to the credit union system.
In testimony prepared for delivery at a Senate Banking Committee hearing Matz said the existing limits “often inhibit credit unions from meeting the financial needs of credit-worthy members who are self-employed or small business owners.’’
Matz endorsed legislation sponsored by Sen. Mark Udall (D-Colo.) that would raise the cap from 12.25%of assets to as much as 27.5%.
She noted that although credit unions only make about 1% of all business loans (the dollar-weighted average MBL is $223,000) those loans are important to the success of small businesses. She predicted that if each credit union most likely to qualify for higher MBL limits under the Udall bill increased its business lending by 30% it would result in more than $2 billion in new credit.
Matz also said that raising the cap would be a more effective way to manage risk because it would let credit unions diversify the risk of their loan portfolio. She noted that MBLs usually have less interest rate risk than long-term fixed rate mortgages.
She also recounted the agency’s strong history of strengthening the rules on MBLs and promised to build on that if credit unions were given more business lending authority. Matz said the agency had increased underwriting standards and collateral requirements since it adopted the first MBL rule in 1987
Meanwhile, trades officials said in their prepared testimony that the legislation takes a balanced approach to helping credit unions do more to help jumpstart the economy.
NAFCU Chairman Michael Lussier said the legislation provides a “practical and well-thought out approach to raising the arbitrary threshold, while addressing concerns about rapid growth and safety and soundness.’’
CUNA President/CEO Bill Cheney also refuted an analysis by the Congressional Budget Office that raising the cap would cause as much as $354 million in revenue losses through 2020 because some assets would be shifted from taxable institutions to credit unions.
Cheney said that most new MBLs made by credit unions wouldn’t have been made by other financial institutions. And he also pointed out that even though credit union business lending has increased fourfold since 1998, the credit union share of total assets of financial institutions has only grown 5%.
Under the Udall bill, eligible credit unions will be able to increase their small business lending to 27.5% of total assets, at a rate of growth 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 would have to stop making new business loans.
Currently, business loans 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 Udall’s bill or a companion bill that has been introduced in the House.