WASHINGTON -- Bill Spearman, CEO of the $590 million Mid-Hudson Valley Federal Credit Union, gave members of the House of Representatives Small Business Committee a credit union perspective on the use of credit cards to finance small-business start ups and CUs' role in small-business lending.

Spearman, testifying at the April 3 hearing, described how his credit union had to cope with widespread job losses among its members, primarily IBM employees at the time, when the local plant shut down in 1995. Part of the credit union's efforts included providing its members with capital to transition to new careers, many as budding entrepreneurs, Spearman said in his prepared comments.

"Credit card lending plays an integral role in providing much needed capital for our small-business members to grow their companies," Spearman wrote in his prepared testimony. "Currently, 61 Mid-Hudson business members have business credit card accounts with our credit union. This represents a total credit limit available of $600,000, of which $200,000 is in carried balances. The largest credit limit among these 61 businesses is $30,000. Absent the capital provided through credit cards, these businesses surely would not be as successful as they are today and unemployment would likely be higher."

Spearman, who serves on NAFCU's Education Committee, also took the opportunity to attack credit unions' member business lending cap. "Even though credit unions have been able to grow in their ability to help small businesses, many want to do more," Spearman said at the hearing. "Unfortunately, many federal credit unions face an impediment to helping their small-business members due to the arbitrary member business lending cap that was placed on them in 1998 as part of the Credit Union Membership Access Act. This arbitrary cap is set at the lesser of 1.75 times the net worth of a well-capitalized credit union or 12.25% of total assets."

Representative Steve Chabot (R-Ohio) asked how lifting the cap would help with small-business lending overall. Spearman said his CU was dangerously close to hitting that cap, particularly since there is no secondary market in small-business loans as there is for mortgages. He noted as well that the cap limits his CU's ability to offer credit cards with smaller business credit limits since credit limits in the $50,000-$100,000 range count against the cap whether the credit is used or not.

Representative Charlie Gonzalez (D-Texas) reminded the witnesses that the goal of the hearing was to try to assess why the use of credit cards to fund small-business efforts was growing and whether that was a good thing.

"I am sure with the community bankers and credit unions here before us, we are hearing about the best of credit card practices," Gonzalez said. "We should probably have representatives here from some of the big credit card issuers to get a more complete view."

Gonzalez pointed out that many circumstances counted against small businesses being offered regular loans. He asked if the credit unions and small banks spent as much or more time promoting small-business loans as they do promoting credit cards.

Spearman said that in his CU's experience, most small-business cardholders use their cards more as transaction vehicles than as lines of credit, much in the same way that many use their cars as their offices. Most of the small-business credit card holders pay off their cards every month making the use of the cards essentially an interest-free loan.

Spearman also advocated streamlining the Small Business Administration lending process in addition to raising the cap. He added that the SBA has generally withdrawn from many of its education and promotion efforts.

Representative Brad Ellsworth (D-Ind.) asked Spearman and William Rosacker, president of United Bankers' Bank, of Bloomington, Minn. how the each viewed CURIA. Rosacker testified on behalf of the Independent Community Bankers of America.

"I don't want to start a fight," said Ellsworth, "between the two gentlemen on the end [of the witness table,] but does the Community Bankers Association have a position on CURIA? I know when I talk to bankers and credit unions back home the topic is a somewhat sticky subject."

Ellsworth's question drew laughter and prompted Committee Chairman Nydia Velazquez (D-N.Y.) to ask Ellsworth, "What are you doing?"

Rosacker responded that the ICBA opposed a CU expansion of powers before he passed the microphone to Spearman who reiterated NAFCU's support for the bill, stating that he "respected community bankers efforts and what they do for their communities."

Spearman also discussed the use of personal credit cards by members to finance their small-business efforts. With education, Spearman said, the members could probably find an empathetic ear at the CU if they would come in and discuss their small-business credit needs.

--dmorrison@cutimes.com

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