Legislation that would raise the cap on credit unions' businessloans to members is poised for a mid-April showdown in theSenate.

Although credit unions failed to get a member business lendingexpansion package, S. 509, added to the JOBS bill that was passedby the Senate, credit union lobbyists did manage to convince SenateMajority Leader Harry Reid (D-Nev.) to bring the bill to the Senate floor for an up or down vote. Thevote had not been officially scheduled as of press time.

S. 509, which was re-introduced as S. 2231 for proceduralreasons, would raise the cap on credit union member businesslending from 12.25% of assets to 27.5% of assets for credit unionsmeeting NCUA requirements. 

During debate on the failed attempt to include the memberbusiness lending legislation as an amendment to the jobs bill, Reidpraised the hard and persistent work of its chief sponsor, Sen.Mark Udall (D-Colo.) and noted that “there are always reasons forthe bill not to be brought forward,” and pledged to see the billadvanced to the floor.

In supporting the bill, Udall said the Senate should pass itimmediately. “If we did so, we would see immediate results,” hesaid.

Udall also cited stories of Colorado small businesses that werejudged to be too small to garner attention from the banks butreceived assistance from credit unions in Colorado.

“It's hard to believe that the federal government is tellingfinancial institutions they cannot help small businesses in theirown communities,” the senator added.

But there was a procedural problem. Udall's original bill, S.509, had been referred to the Senate Committee on Banking, Housingand Urban Affairs where banking opponents were expected toeffectively kill it. So Udall re-introduced the legislation asanother bill, S. 2231, which freed it up for debate and a possiblevote in the Senate.

Brad Thaler, vice president for legislative affairs for NAFCU,applauded the move, saying it means the legislation could be movedto the Senate floor under a procedure called Rule 14. Rule 14allows the majority leader to object to a bill being sent tocommittee after two readings, and instead bring it to thefloor.

It is unclear when that might happen, however, and Thaleranticipated it might not be until after the Senate returns from itsEaster recess in mid-April.

Even if the bill manages to pass the Senate, either as astandalone measure or as an amendment to another bill, there are noguarantees that it would clear the entire legislative process.First, while there is a companion measure in the House, it may notbe easy to bring to the floor. Nor is there a guarantee that theHouse would take up the Senate bill. Second, as the election seasondraws steadily closer, it seems less and less likely that Congresswill pass another piece of legislation that could serve as avehicle for the member business lending bill.

Thaler remained optimistic, noting the strong bi-partisansupport in the House that similar bills have had in the past andsuggesting that a bill passed in the Senate would bring pressure tobear to pass it in the House, too. “We think it may be very hard toresist that,” he said.

Ryan Donovan, CUNA's senior vice president for legislativeaffairs, agreed with Thaler's optimism, predicting that the Housewould take up the Senate bill. “We have spent significantly moretime on this issue in the House than in the Senate,” henoted. 

In addition to procedural challenges, opposition to S.2331 hasbuilt up. 

The American Bankers Association has begun urging its grassrootssupporters to contact their senators to oppose the most recentattempt to raise the cap on credit union member businesslending. 

An email from the banking group rallies the troopsagainst  S. 2331. “A small, but aggressive, group offast-growing credit unions are pushing legislation that would allowthe NCUA to increase a credit union's business lending cap from12.25% to 27.5% of total assets,” the association wrote in itsMarch 27 email. “Though the legislation's title–the Small BusinessLending Enhancement Act–attempts to play on concerns forstimulating the economy and creating jobs, there is no provisionthat would limit new lending to small businesses. Please write toyour Senators today, asking them not to support the legislation,either as a stand-alone bill or as an amendment to otherlegislation on the Senate floor,” the association concluded.

In addition, the conservatorship of Telesis Credit Union, whichhad a significant member business lending profile, has fueledopponents' efforts against the bill.  The CaliforniaDepartment of Financial Institutions conserved the 38,000-member,$318 million asset Telesis, headquartered in Chatsworth, Calif.,and appointed the NCUA as the conservator on March 24. Telesis hadlost a significant amount of money in both 2010 and 2011 and mademember business lending a core part of its lending operations.

The Independent Community Bankers of America lost little timejumping on the Telesis troubles as a sign that the member businesslending cap should not be increased. 

“ICBA has said time and again that Congress enacted thetax-exempt credit unions member business lending caps for a goodpolicy reason,” the community banking group wrote. “Credit unionsare tax-exempt so they can serve individuals of modest means andcommon bonds. Allowing credit unions to expand their memberbusiness lending parameters could put many smaller credit unionsinto precarious situations, which could lead to failure.”

ICBA suggested that Telesis's problems were due, at least in part, to its exemptionto make more member business loans than it would otherwise havebeen allowed under the cap.

“Telesis Credit Union was granted special permission to domember business lending beyond the 12.25% cap and was doingmultimillion dollar commercial loans all around the country,including a failed Orlando, Fla. shopping center. Senators shouldask if this sort of risky lending activity, which would increase ifS. 2231 were to pass, is consistent with Congress' intent ofensuring that tax subsidized credit unions serve people of modestmeans,” the trade group added.

But Donovan said this email has largely fallen on deaf ears incongressional staff offices where some staffers have commented onthe irony of banks commenting on how credit unions make businessloans after so many of them have failed in the last few yearslargely because of poorly performing business loans.