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Administration working to expand credit union commercial lending

Tax-Exempt Credit Union Seek Business Lending Expansion 

We're told the Obama Administration is going to try and include an increase in the credit union business lending cap in an upcoming jobs creation bill.  Bankers oppose this expansion because credit unions are exempt from federal income taxes and federal credit unions don't even pay state income or sales taxes!  They were given their numerous tax exemptions to serve people of low to moderate income, not to make commercial loans and compete on an unfair basis with traditional, tax-paying community banks.  
 
The timing of the jobs bill is uncertain, but the desire of the Administration to support such an increase is apparently gaining traction at the Treasury Department.  It's also a shock.  Why would you promote the expansion of business lending activities for non-tax-paying credit unions at the expense of traditional, tax-paying community banks?  That doesn't make any sense.
 
Credit unions have pushed for this increase and two bills have been introduced to increase the cap from 12.25 percent to 25 percent of total assets (and loans up to $250,000 won't count against the cap!).   They claim it will increase small business lending.  It won't.  Tax-exempt credit unions have to be concerned about what their examiners will say about making any loan in the current environment.  Presumably, they will be considering the same issues that keep community banks from making such loans in many instances today - fear of regulatory criticism and classification.  That's an un-told story that much of the general public simply misses.
 
The bills that have been introduced are H.R. 3380 in the House and S. 2919 in the Senate.  While only 37 of the nearly 7,600 credits unions in the nation would benefit from a cap increase – none of which are in Oklahoma – many Members of Congress and now apparently the Administration believe that this increase will help more small businesses receive loans.
 
If this measure is included in a larger jobs creation bill, it is likely that even Members who are opposed to this increase would feel compelled to vote for the jobs package.
 
Here are the facts that should be used to argue against including any increased lending limit for credit unions in a jobs bill:
 
It Would Benefit Only ½ of One Percent of All Credit Unions.
 
  • The primary beneficiaries of such expanded authority are large, non-traditional, growth-oriented (and yet tax-exempt) credit unions that have abandoned their mission of serving people of modest means.
  • 99.5 percent of credit unions have authority and lending capacity to make additional loans to small businesses today, yet have chosen not to do so.  Why do you suppose that is?  Likely it's for the same reasons traditional community banks are not making a lot of loans today:  (1) - loan demand from quality customers is off dramatically across the country; and (2) examiners - even credit union examiners - are MUCH more critical today than they were 18 months ago.   
  • The number of credit unions offering small business loan products has actually decreased over the past year or more, from 1,942 in 2008 to 1,674 today.  It's further evidence that raising the cap would have very little impact on lending to business. 
It Would Give More Authority to Credit Unions that Already Have Sufficient Authority to Make Small Business Loans.
 
·         Under current law, the aggregate business loan limit is 12.25 percent of a credit union's assets.  The limitation helps to prevent the credit union's tax subsidy from being used to support business loans which are normally made by traditional community banks.
·         Business loans that are less than $50,000 or have a governmental guarantee are excluded from the calculation of the aggregated business loan limit.  This means that, for the most part, credit unions already have sufficient authority to meet the credit needs of their small business customers.
 
It Would Pose a Serious Safety and Soundness Concern.
 
  • The Government Accountability Office (GAO) warned in 2003: “[S]ince member business loans constitute only a small percentage of credit union lending, most NCUA [National Credit Union Administration] examiners will not have significant experience looking at this type of lending activity.”
  • A number of credit unions have become troubled or failed because of bad commercial loans.
 
We're asking bankers to express opposition to the increase in credit union business lending and have their directors and your employees do the same. Send an e-mail to the Banking LA's right away on this critical issue and ask them to ask their “boss” to oppose this effort. Here's the list:
 
Senator Inhofe (202) 224-4721                Senator Coburn (202) 224-5754
Clark Peterson                                              Drew Berky
clark_Peterson@inhofe.senate.gov          Drew_Berky@coburn.senate.gov
 
Rep. John Sullivan (202) 225-2211           Rep Dan Boren (202) 225-2701
jon.oehmen@mail.house.gov                     thomas.wharton@mail.house.gov
 
Rep. Frank Lucas (202) 225-5565             Rep. Tom Cole (202) 225-6165
courtney.box@mail.house.gov                    joshua.grogis@mail.house.gov
 
Rep. Mary Fallin (202) 225-2132
matt.wise@mail.house.gov

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