I read Marv Ulmholtz’ newsletter regularly and the June 22 edition did not disappoint. I split about 50/50 as far as agreeing or disagreeing with his views, but I enjoy his writing style, including referring to himself as “this correspondent.”
Umholtz called the June 16 Senate Banking Committee hearing on Sen. Udall’s bill was “merely a pro forma dog-and-pony show.” True in part as most hearings are; politicians are looking to score political points one way or another and the lobbyists want to say, “Look at what we’ve accomplished.” And there’s nothing wrong with that because the issues do need to be made public. While the members of Congress and witnesses were well-prepped, it was certainly not staged.
NCUA Chairman Debbie Matz was able to answer how credit unions can safely make loans turned down by banks, stating that the loans were not turned down because they were bad loans but because of the size of the loan. She said she was not concerned about the risky nature of business loans as long as credit unions are prudently underwriting them. She noted credit unions’ concentration in auto and mortgage loans and said business lending would help round out that risk.
Responding to presumably banker-planted questions from the lawmakers, Matz also said that expanded business lending would not detract from consumer lending given that credit unions are only about 68% loaned out. This is a safety and soundness issue as well as a mission issue in my mind and no rationale exists to not consider small business owners and their businesses as members.
Matz added that just one credit union of the 55 that failed in 2009-2010 was directly a result of business lending, and 2,200 credit unions offer business loans. Senate Banking Committee Ranking Member Richard Shelby (R-Ala.) smiled and pointed out that a lot more banks failed than credit unions during that period.
While Matz is–to the extent an industry regulator can–championing the issue on the Hill, the implementing regulation will be a key factor. The NCUA has to show it will be a tough regulator of credit unions getting into business lending but cannot go overboard as to stifle the opportunity.
If the business lending expansion ever happens at all. During the hearing, the banking trade representatives jumped up and down with their usual histrionics about not allowing credit unions to expand their business lending authorities because of the tax exemption. The public policy reason for the tax exemption is the social good that credit unions provide, not because of their limited authorities. In fact, the tax exemption is decades old versus the business lending cap, which dates from 1998. The purpose of the business lending cap was a trade off for expanded fields of membership in H.R. 1151 that would have been extremely curtailed as a result of the American Bankers Association suit against the NCUA.
The tax exemption is the perennial boogey man of the credit union trades and the banking trades’ excuse for existing when there’s nothing important going on (like, say, a deep, prolonged financial crisis). The banking trades use the tax exemption to demonize the credit unions among the banks as well as absurdly trying to frame credit unions as not doing their patriotic duty.
But there are more problematic issues that stand in the way of credit unions’ expanded business lending efforts. For starters just four members of the 22-member Banking Committee showed for any part of the hearing. They aren’t serious about this. When they’re interested or it’s something worth making political hay over, members of Congress do what they can to get on the record.
Though not a committee member, notably absent from the dais at the hearing was the bill’s sponsor, Sen. Udall. His Colorado cohort Michael Bennet did attend. None of the 18 co-sponsors of the bill attended the hearing either, three of whom serve on the Banking Committee.
Finally, the banking trades will scream bloody murder if credit unions are permitted to expand their business lending. Then elected officials and their campaign managers will not touch the issue with a 10-foot pole–pun intended.