MBL Hike May Fall Victim to Procedure and Politics
CUNA and NAFCU often say that during the recent financial crisis their members wore the white hats. When it comes to raising the cap on member business loans, however, those hats may not be enough of a counterforce to the Senate's procedures and election-year politics.
When Congress returns from recess this week, Senate Democrats will again attempt to bring up a bill aimed at encouraging job creation. But concern about rising deficits among Republicans and some Democrats may prevent the bill from even coming up for a vote. Although Democrats have 58 seats in the 100-member chamber (with one vacancy), the rules require 60 votes to break a GOP-led filibuster.
Even if the bill comes up for a vote and Sen. Mark Udall (D-Colo.) is allowed to offer his amendment to raise the member business lending cap to as much as 27.5% of assets, the banking lobby has said it will try to kill the bill if it includes that provision.
The Independent Community Bankers of America says the presence of the MBL provision will provoke an all-out effort to kill the bill, even though it creates a special fund for community banks to access to provide capital to make more loans.
"The presence of the loan fund isn't enough to balance the negative impact of giving credit unions the right to make more business loans," said Paul Merski, ICBA senior vice president and chief economist, in an interview. "The tradeoff is not commensurate.
"Limits on business loans are the tradeoff that credit unions have for receiving their tax exemption. There is no policy reason to have a tax subsidy if you aren't serving a unique policy purpose and have the same privileges as those financial institutions that pay taxes."
The bill, which passed the House last month, sets up a program in which the government can inject funds into community banks with assets of $10 billion or less, and in return the banks would pay the government a dividend. But as the bank's lending increases, the dividend would get smaller.
John Magill, senior vice president for legislative affairs at CUNA, said the bankers are demonstrating "some nerve in taking the position that they do. They are going to get taxpayer money and they are complaining about our plan, which requires not a dime of government money."
He said CUNA would push hard for an MBL cap increase both during meetings with lawmakers in their states and in Washington but declined to predict the ultimate outcome. He did, however, say, "I am as optimistic as I have been."
Jillian Pevo, associate director of legislative affairs at NAFCU, said the administration's support increases the chance that the MBL cap increase will pass, but the association is taking nothing for granted. It is stressing to lawmakers the positive impact on the economy that raising the lending cap would have, she added.
The language on member business lending was the result of extensive negotiations among the Treasury Department, the NCUA, CUNA, NAFCU and lawmakers. The Obama administration said it would only support raising the 12.25% cap-which was imposed on credit unions as part of the Credit Union Membership Access Act passed by Congress in 1998-if there are certain regulatory safeguards and if the NCUA takes a gradual approach. The administration wants to keep the limit at 12.25% for most credit unions but increase it for those that meet certain higher standards.
The legislation mandates that the NCUA implement a tiered approval process so that credit unions "gradually increase the amount of member business lending in a manner that is consistent with safe and sound operations." This process would be spelled out in rules that the agency must issue within six months after the bill is passed.
CUNA estimates that approximately 350 credit unions are at or near the statutory lending cap.