Members of the so-called “silent majority” of credit unions that oppose S. 2231, the bill that would increase the member business lending cap for credit unions, spoke out as banking lobbyists pressed the issue to lawmakers.
The Independent Community Bankers of America and the American Bankers Association fired off a joint letter July 17 to all U.S. senators telling them a silent majority of credit unions oppose the Small Business Lending Enhancement Act, which would raise the credit union member business lending cap from 12.25% to 27.5% of assets.
The letter sources three credit union executives who have written letters to their senators opposing S. 2231: Dennis Moriarty, Manager of the $51 million Unity Credit Union in Michigan, Dale Kerslake, president/CEO of the $256 million Cascade Federal Credit Union in Washington and Stuart Perlitsh, president/CEO of the $323 million Glendale Area Schools Federal Credit Union in California.
Moriarty said in his letter that credit unions are already paying off corporate credit union losses, which began with expanded investment authority granted to corporates.
“Asking for an ‘expanded authority’ for higher business lending authority brings a further risk to credit unions,” Moriarty wrote. “Without asking we have already become the participants in the wind down and dissolution of credit unions that thought they ‘knew how to make business loans.’”
Kerslake wrote in his letter that both regulators and credit unions are “ill-prepared for asset-based expanded MBL” and also referenced corporate credit union expanded authority.
“Already known future NCUSIF assessments thrust upon the nation’s weakened credit unions is something Congress must consider before granting any new authority to the credit union industry,” he wrote.
An increase in the MBL cap could easily become the next credit union industry crisis, Perlitsh said, echoing his colleague’s fears of additional assessments.
“The silent majority doesn’t want this, and NAFCU and CUNA should save their firepower for provident and productive pursuits,” he said, in response to a Credit Union Times article on the subject. “These huge, aggressive billion-dollar MBL happy credit unions should convert to a community bank charter, trade in their credit union not-for-profit tax exempt charter so the credit union community is not at further risk of more Telesis MBL type assessments. I am getting sick and tired of paying NCUA assessments for the benefit of so few that caused harm to so many.”
Greater Kentucky Credit Union CEO Mike Fromma said he had expressed his opposition at a Kentucky Credit Union League board meeting and has chastised some colleagues who he knows also oppose the bill but haven’t spoken out against it.
Many credit union executives are apolitical and don’t actively fight for or against issues, he said, explaining why so few have gone on record in opposition to the legislation.
The current cap, 12.25% of assets, is plenty of risk for the credit union movement to take on, said the leader of the $66 million institution, especially considering total capital for the industry is around 10%.
Fromma said he’s seen a number of real estate bubbles burst, and the problems are usually in the same parts of the country, the sand states and the industrialized Midwest.
“Then you see these same people calling for more business loans, and you get suspect after awhile,” he said. “Some of those guys that run big credit unions kind of fly by the seat of their pants. Don’t get me wrong, there’s a lot of good ones out there, but it doesn’t take many to tip the scales.”
“I think we all learned a lesson from the corporate system,” he said.
The bank lobby letter also sourced a January 2012 GAO report that determined that failed credit unions had more member business loans as a percentage of assets than the credit union industry. In addition, the report and letter cited that more than 40% of failed credit unions participated in member business lending.
Industry consultant Tom Glatt Jr. said according to his research, fears of credit union failures like the Chatsworth, Calif.-based Telesis Credit Union may be unfounded. Glatt said when comparing 11 key financial indicators, credit unions that offer member business loans outperform those that do not.
“When we compare the average HealthScore for credit unions engaged in member business lending versus the entire industry, we see that MBL credit unions have, on average, a healthier operating environment,” Glatt said. “That isn't to say that all CUs engaged in MBLs are healthy. Obviously, some are not. But there is certainly a noticeable performance difference between those CUs that offer MBLs versus the average credit union.”
Based on first-quarter Call Report data, credit unions that offer MBL earned a HealthScore just shy of 3, while those that don’t scored a 2.5, on a scale of 0 to 5, Glatt said. MBL credit unions scored significantly higher in four categories: loans, deposits, earnings and loan to share ratio. Scores for efficiency, delinquencies, charge offs, asset growth and member growth gave a slight edge to MBL credit unions. Operating expense scored evenly between the two, and net worth showed credit unions that don’t offer MBL having a slightly higher rating.
Failed credit unions that offered MBL were in the 10th percentile of the HealthScore matrix, Glatt said.
“They weren’t the best of the best,” he said. “Our point is, most credit unions do manage it, only a handful have had problems, and they are not an indication of the failure of member business lending by the credit union industry. In fact, they are generally healthier.”
CUNA’s attempts to craft a package that would include legislation to increase the credit union member business lending cap to 27.5% of assets and extend FDIC deposit insurance for bank transaction accounts would have to overcome one influential group, the American Bankers Association.
James Ballentine, the ABA’s chief lobbyist, said efforts to increase the MBL cap have not succeeded because “facts indicate there are a number of credit unions that have more than enough business lending capacity already.”
Additionally, he said, the bill would benefit a select few credit unions.
“There are over 7,000 credit unions and about that many banks, and we’re not going out and requesting something that would only apply to 29 banks,” he said. “We would never do that, and I think Congress recognizes that.”
Letters to Congress on the subject from CUNA say 500 credit unions, not 30 as claimed by bankers, are currently managing business lending to the cap.
Ballentine said credit unions that want the MBL cap increased are aggressive and outspoken on the issue and have made their position known to CUNA and NAFCU.
“Sometimes the vocal majority can overwhelm the silent majority,” he said.
He added that the ABA has heard from many credit unions who oppose the legislation. Many have called ABA Senior Economist Keith Leggett, who pens the “Credit Union Watch” blog, to voice their opinion, he said.
Ballentine said he was not familiar with an April 20 poll conducted by American Banker that revealed only 55% of banks oppose raising the credit union member business lending cap. Additionally, the poll found that 28% of participants were in favor of it, and another 17% would approve of lifting the cap if credit unions were also required to maintain enough capital to cover potential losses.
“I can tell you that we just finished our summer meeting in Chicago with a number of bankers across the country and [the opposition] was unmistakable,” Ballentine said. “You can’t misinterpret how strongly they felt on credit union issues. At that meeting, they made it clear to us that they are adamantly opposed to the cap increase.”
The seasoned lobbyist was hesitant to speculate on the odds of getting S. 2231 passed during the current Congressional session but said based upon the history of previous efforts, its chances are not good.
“More important than history is the days for legislative activity on the Hill is short, and Congress is getting closer to going home every day, so I’d put the odds at long. I don’t think my credit union brethren could disagree with that,” he said.