Members of the so-called “silent majority” of credit unions thatoppose S. 2231, the bill that would increase the member businesslending cap for credit unions, spoke out as banking lobbyistspressed the issue to lawmakers.

The Independent Community Bankers of America and the American Bankers Association fired off a joint letter July 17to all U.S. senators telling them a silent majority of creditunions oppose the Small Business Lending Enhancement Act, whichwould raise the credit union member business lending cap from12.25% to 27.5% of assets.

The letter sources three credit union executives who havewritten letters to their senators opposing S. 2231: Dennis Moriarty, Manager of the $51 million Unity Credit Unionin Michigan, Dale Kerslake, president/CEO of the $256 million CascadeFederal Credit Union in Washington and Stuart Perlitsh, president/CEO of the $323 million GlendaleArea Schools Federal Credit Union in California.

Moriarty said in his letter that credit unions are alreadypaying off corporate credit union losses, which began with expandedinvestment authority granted to corporates.

“Asking for an 'expanded authority' for higher business lendingauthority brings a further risk to credit unions,” Moriarty wrote.“Without asking we have already become the participants in the winddown and dissolution of credit unions that thought they 'knew howto make business loans.'”

Kerslake wrote in his letter that both regulators and creditunions are “ill-prepared for asset-based expanded MBL” and alsoreferenced corporate credit union expanded authority.

“Already known future NCUSIF assessments thrust upon thenation's weakened credit unions is something Congress must considerbefore granting any new authority to the credit union industry,” hewrote.

An increase in the MBL cap could easily become the next creditunion industry crisis, Perlitsh said, echoing his colleague's fearsof additional assessments.

“The silent majority doesn't want this, and NAFCU and CUNAshould save their firepower for provident and productivepursuits,” he said, in response to a Credit Union Timesarticle on the subject. “These huge, aggressive billion-dollarMBL happy credit unions should convert to a community bank charter,trade in their credit union not-for-profit tax exempt charter sothe credit union community is not at further risk of more Telesis MBL type assessments. I am getting sick and tiredof paying NCUA assessments for the benefit of so few that causedharm to so many.”

Greater Kentucky Credit Union CEO Mike Fromma said he hadexpressed his opposition at a Kentucky Credit Union League board meeting and has chastisedsome colleagues who he knows also oppose the bill but haven'tspoken out against it.

Many credit union executives are apolitical and don't activelyfight for or against issues, he said, explaining why so few havegone on record in opposition to the legislation.

The current cap, 12.25% of assets, is plenty of risk for thecredit union movement to take on, said the leader of the $66million institution, especially considering total capital for theindustry is around 10%.

Fromma said he's seen a number of real estate bubbles burst, andthe problems are usually in the same parts of the country, the sandstates and the industrialized Midwest.

“Then you see these same people calling for more business loans,and you get suspect after awhile,” he said. “Some of those guysthat run big credit unions kind of fly by the seat of their pants.Don't get me wrong, there's a lot of good ones out there, but itdoesn't take many to tip the scales.”

“I think we all learned a lesson from the corporate system,” hesaid.

The bank lobby letter also sourced a January 2012 GAOreport that determined that failed credit unions had moremember business loans as a percentage of assets than the creditunion industry. In addition, the report and letter cited that morethan 40% of failed credit unions participated in member businesslending.

Industry consultant Tom Glatt Jr. said according to hisresearch, fears of credit union failures like the Chatsworth,Calif.-based Telesis Credit Union may be unfounded. Glatt said whencomparing 11 key financial indicators, credit unions that offermember business loans outperform those that do not.

“When we compare the average HealthScore for credit unionsengaged in member business lending versus the entire industry, wesee that MBL credit unions have, on average, a healthier operatingenvironment,” Glatt said. “That isn't to say that all CUs engagedin MBLs are healthy. Obviously, some are not. But there iscertainly a noticeable performance difference between those CUsthat offer MBLs versus the average credit union.”

Based on first-quarter Call Report data, credit unions thatoffer MBL earned a HealthScore just shy of 3, while those thatdon't scored a 2.5, on a scale of 0 to 5, Glatt said. MBL creditunions scored significantly higher in four categories: loans,deposits, earnings and loan to share ratio. Scores for efficiency,delinquencies, charge offs, asset growth and member growth gave aslight edge to MBL credit unions. Operating expense scored evenlybetween the two, and net worth showed credit unions that don'toffer MBL having a slightly higher rating.

Failed credit unions that offered MBL were in the 10thpercentile of the HealthScore matrix, Glatt said.

“They weren't the best of the best,” he said. “Our point is,most credit unions do manage it, only a handful have had problems,and they are not an indication of the failure of member businesslending by the credit union industry. In fact, they are generallyhealthier.”

CUNA's attempts to craft a package that would include legislation to increase thecredit union member business lending cap to 27.5% of assets andextend FDIC deposit insurance for bank transaction accounts wouldhave to overcome one influential group, the American BankersAssociation.

JamesBallentine, the ABA's chief lobbyist, said efforts to increasethe MBL cap have not succeeded because “facts indicate there are anumber of credit unions that have more than enough business lendingcapacity already.”

Additionally, he said, the bill would benefit a select fewcredit unions.

“There are over 7,000 credit unions and about that many banks,and we're not going out and requesting something that would onlyapply to 29 banks,” he said. “We would never do that, and I thinkCongress recognizes that.”

Letters to Congress on the subject from CUNA say 500 creditunions, not 30 as claimed by bankers, are currently managingbusiness lending to the cap.

Ballentine said credit unions that want the MBL cap increasedare aggressive and outspoken on the issue and have made theirposition known to CUNA and NAFCU.

“Sometimes the vocal majority can overwhelm the silentmajority,” he said.

He added that the ABA has heard from many credit unions whooppose the legislation. Many have called ABA Senior Economist KeithLeggett, who pens the “Credit Union Watch” blog, to voice theiropinion, he said.

Ballentine said he was not familiar with an April 20 pollconducted by American Banker that revealed only 55% of banks opposeraising the credit union member business lending cap. Additionally,the poll found that 28% of participants were in favor of it, andanother 17% would approve of lifting the cap if credit unions werealso required to maintain enough capital to cover potentiallosses.

“I can tell you that we just finished our summer meeting inChicago with a number of bankers across the country and [theopposition] was unmistakable,” Ballentine said. “You can'tmisinterpret how strongly they felt on credit union issues. At thatmeeting, they made it clear to us that they are adamantly opposedto the cap increase.”

The seasoned lobbyist was hesitant to speculate on the odds ofgetting S. 2231 passed during the current Congressional session butsaid based upon the history of previous efforts, its chances arenot good.

“More important than history is the days for legislativeactivity on the Hill is short, and Congress is getting closer togoing home every day, so I'd put the odds at long. I don't think mycredit union brethren could disagree with that,” he said.