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WASHINGTON-Lafayette Federal Credit Union President and CEO Michael Hearne, testifying on behalf of CUNA, informed a congressional subcommittee of the problem credit unions’ 12.25% cap on business loans poses. The House Small Business Committee’s Regulatory Reform and Oversight Subcommittee held a roundtable March 17 on small business regulatory concerns with oral comments coming from groups representing restaurants to construction workers to beer wholesalers. Hearne, who formerly worked for the Small Business Administration, explained that most of credit unions’ problems in business lending would be addressed with the Credit Union Regulatory Improvements Act, which is expected to be introduced this spring and will increase the definition of a business loan to a minimum of $100,000; exempt loans to nonprofit religious organizations; and raise the 12.25% of assets aggregate ceiling to 20%. Hearne said that Lafayette recently started its business lending program. “I think it’s arbitrary that we can make half as many loans as a $600 million firefighters’ credit union,” he stated. Lafayette is mainly focusing on commercial real estate lending, which tend to be higher dollar loans and would bump up against Lafayette’s lending limits quickly. “We are going to be one of those credit unions that are going to run up against our cap,” Hearne explained to Credit Union Times following the hearing. Real estate loans tend to be around $1 million and up and, at 12.25%, $305 million Lafayette could only make around 40 loans. Lafayette has an application in to become an SBA lender in order to help avoid that cap; the guaranteed portion of SBA loans does not count against the credit union business lending cap. The credit union is also working to set up a business lending credit union service organization. The 12.25% cap discourages credit union participation in business lending, Hearne’s written remarks submitted for the record maintain. “Many are concerned that the costs of meeting these requirements cannot be recovered with a limit of only 12.25% of assets,” he wrote. “In general, credit unions run the risk of being regulated right out of sound member business lending programs,” Hearne added. “By severely restricting the amounts credit unions can lend, the terms, the structure, etc., federal policy forces credit unions to assume the role of lender of last resort, after the borrower has been turned down by the banks.” He also encouraged the subcommittee to ensure SBA’s 7(a) program was appropriately funded and that SBA consider streamlining the approval process. -

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