LICU Move Elicits Bankrupt Howls From ICBA: Editor's Column
As drought-stricken businesses across the country are in dire need of assistance, the Obama administration asked the regulators to find ways to provide aid. The NCUA responded by informing 1,003 credit unions of their eligibility for low-income designation and allowing them to opt-in rather than slogging through paperwork.
The significance is that LICUs are not bound to the 12.25% of assets cap on member business lending.
Naturally, the community banks are crying foul. For fun, let’s pick apart what the Independent Community Bankers Association said about the NCUA’s move.
“The NCUA’s decree granting unlimited member business lending authority to more than 1,000 tax-exempt credit unions goes against the will of Congress and any rational regulatory policy authority. Lawmakers set reasonable statutory caps on business lending by credit unions because these tax-subsidized institutions were established to serve people of modest means with a common bond.”
First, the NCUA did not decree unlimited authority on these 1,003 credit unions as common business sense would not permit unlimited business lending. Second, doing away with regulatory busywork is not irrational; it’s the exact opposite of irrational. Third, no matter how many times the bank trades say it, credit unions are not “tax-subsidized institutions established to serve people of modest means with a common bond.” Credit unions were intended to serve their FOMs, including those of modest means.
The credit unions included average $92.5 million in assets (median $19.3 million). These aren’t credit unions targeting massive corporate farms. These are precisely the credit unions to serve the rural family farmers and farmers’ markets the administration intended, which are shunned by many banks. An SBA study that found 80 cents of every dollar of credit union business lending is new funding.
It is pathetic that the bankers are worried about a small number of small credit unions possibly lending where most banks aren’t anyway. Of the credit unions notified, only about 24% (239 CUs) already make business loans. The other 764 eligible credit unions can’t set up business lending programs overnight if they are even willing or able.
The maximum benefit the NCUA estimates would total about $500 million in new loans. It’s too bad that more credit unions couldn’t assist those affected by the drought (literal and credit-wise) because the bankers continue to stall the business lending legislation.
Next, the ICBA asserts in its press statement, “Outrageously, the NCUA has unilaterally acted to designate credit unions as low-income, which could automatically double the number of credit unions with that designation. The administration and NCUA appear to be exploiting the nation’s drought conditions to rationalize these designations–despite the fact that less than half of these credit unions are in states with extreme drought conditions.”
The administration may very well be exploiting the drought conditions. Necessity is the only thing that gets Washington moving. However, no rationalization is taking place. These credit unions were already eligible for LICU status, and the NCUA has not “unilaterally acted to designate credit unions” as LICUs. The credit unions have to opt-in and the program is at the behest of the president of the United States, not to mention to the benefit of hard-working, tax-paying Americans. From the ICBA’s point of view, shouldn’t the taxpayers be taking advantage of their tax dollars hard at work in tax-exempt credit unions?
“Highly controversial legislation to expand business-lending authority has failed to advance in Congress for a decade, but the credit union regulator has thumbed its nose at the legislative branch in favor of its own aggressive actions to dramatically expand the tax-exempt credit unions’ powers.”
Again, the NCUA expanded nothing. The agency simply let credit unions know they were eligible based on low-income thresholds as defined by the U.S. Census Bureau. Nothing unilateral about that.
ICBA blathers on about tax subsidies leading to increased risk to the financial system “as evidenced by a January Government Accountability Office report that found that failed credit unions had more member business loans as a percentage of assets than others in the industry.” Blah, blah, Telesis. Seriously? The banks can only play the Telesis card so many times. Statistics from Glatt Consulting actually show that credit unions in business lending are more financially stable than the credit union community overall.
“No wonder several credit union executives have expressed opposition to expanding the industry’s business-lending authority,” ICBA states. On a microsite administered by the group, StoptheCUGrab.org, “several” amounts to three letters from credit union CEOs.
The ICBA statement concluded with more drivel about taxation and Community Reinvestment Act compliance.
The NCUA deserves a kudos for its efforts and should continue in this direction to eliminate unnecessary paperwork that eases the burden not only on its regulated credit unions but also on the NCUA.