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WASHINGTON – With just a handful of credit unions nearing their member business lending caps, why is the entire credit union community pushing for an increase, one might ask. When the Credit Union Membership Access Act became law, it helped many field of membership and other issues necessary for credit unions but it also created some hurdles. Under CUMAA, credit unions are restricted to a cap of 12.25% of their assets or 1.75% of their net worth, whichever is smaller, on their business lending. Currently just 30 credit unions are above 10% heading toward that 12.25% cap and only 10 are over 1.5 times their net worth for the other cap, according to NCUA. Two credit unions appear on both lists. That represents just 1.84% and 0.61% of federally insured credit unions with member business loans on the books. H.R. 3579, the Credit Union Regulatory Improvements Act, includes an increase of the credit unions’ business lending to 20%, equivalent to what the thrifts are offered in the Financial Services Regulatory Relief Act (H.R. 1375). But there are numerous reasons why the credit union community is calling for an increase in the member business lending cap and it all depends on whom you ask. “The bill’s provisions to promote small business development are especially important to me,” Congressman Paul Kanjorski (D-Pa.), one of CURIA’s key sponsors, said. He explained that in Gramm-Leach-Bliley Act, he worked to expand the mission of the Federal Home Loan Banks to include economic development and provide small banks with greater abilities to provide services to local small businesses. “In my experience, however, I have found that individuals seeking to start new businesses still have limited access to capital,” he said. “Credit unions have the capacity to fill this void if we ease the arbitrary barriers that limit their ability to serve this market. Although the National Credit Union Administration recently approved new business lending regulations to facilitate this activity, statutory improvements are still needed. The Kanjorski-Royce bill would make these refinements.” “The economic angle is the reason for the political angle,” CUNA Vice President and Senior Legislative Counsel Gary Kohn stated. He continued, “The start up costs are significant enough.that they sometimes can’t be made up for when capped at 12.25%, so many credit unions have decided they’re not even going to get into it because of the cap.” This type of thinking to the future is exactly what NAFCU President and CEO Fred Becker has set out to bring to NAFCU during his tenure. “As you know, I’ve tried to step in here and look forward, not backward,” he said. Though only a few credit unions are nearing the cap, he said, “Others, as they look out on the horizon, see it as a problem.” One of those credit unions that is nearing its member business lending cap at 11.9% of assets and 1.57 times net worth is $52 million Mennonite Financial Federal Credit Union. CEO Larry Miller explained that the credit union began member business lending 10 years ago and Mennonite Financial is currently selling participations to stay under the ceiling. “For our credit union, it would be very helpful if those caps were raised,” he said. Miller ventured a guess that the institutions’ average business loan is under $100,000, adding that the increase of the definition of a business loan from $50,000 to $100,000 would also help his institution out a lot. Lowering the amount of credit a credit union is willing to extend is another method of negotiating the cap, Pennsylvania Credit Union Association General Counsel Rick Wargo, who is also with the association’s CU BizSource, said. He added, “Adjusting the cap is important to help existing member business lenders or future member business lenders to manage their balance sheet and open up the market place.” The loans that come through CU BizSource, Wargo observed, typically are in the $100,000 to $250,000 range, which is not what the banks are primarily interested in. Becker also suggested Small Business Association-backed lending to help avoid the cap since the guaranteed portion does not count against it. For credit union giant, Navy Federal Credit Union, who is just entering the business services arena, the cap is not the first thing on officials’ minds. “We’re just getting into it,” Navy Federal’s Executive Vice President of Operations Lou Jennings said. “It’s not a big issue for us and it’s going to take us a while to get to that level.” He added that Navy Federal’s approach “is more to the small business loan,” about $50,000 to $60,000 on average they anticipate. According to Assistant Vice President for Business Services Jim Salmon, they plan to keep their loans under $250,000. However, Jennings said, Navy Federal sees the need for and supports an increase in the cap. “Depending on your asset footings, you’re going to run up to that cap pretty quick,” he commented. Because of Navy Federal’s size and the focus on smaller loans it will take them a long time, if ever, to reach the cap, he pointed out. Salmon added that 12.25% of assets for Navy Federal Credit Union would be $2.5 billion right now. Jennings explained that the credit union has been doing equity loans for more than 20 years and is barely over the $2 billion mark. What is more important to Navy Federal specifically right now, Salmon said, is increasing the loan maturity limit and loan to value ratio. People on the policy side agree: now is the time to act. CUNA’s Kohn said credit unions can not afford to wait until the “crisis point.” “Credit unions want to have certainty,” he said. “They’re investing a lot of money and want to make sure it will be a worthwhile investment.” Wargo said that expanding credit unions’ business lending authorities will probably bring about an uprising from the bankers, but no one interviewed said they thought increasing the cap would bring about taxes for credit unions. According to NCUA information obtained through a Freedom of Information Act request, over 103 credit unions (Region II data was incomplete at deadline) have received a 723.17 waiver from the business lending cap either because of history of making business loans, chartered to make business loans or have received low-income designation. “I don’t know that the waiver will solve the long-term problem,” Becker said. [email protected]

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