As long as credit unions have pushed to raise the cap on commercial lending, banks have pushed back. But with the economy presently in a slump and Congress stalled in a lame duck session, each side is hopeful it will prevail in the coming year.
Bills currently before the House and Senate would lift the commercial lending cap imposed upon credit unions from 12.25 percent to 27.5 percent of total assets. Senate Majority Leader Harry Reid and more recently, Democratic New York Sen. Kirsten Gillibrand have thrown their support behind the measure. While it’s unlikely the measure will pass as a standalone bill, supporters are optimistic it could pass as part of a legislative package in next year’s session.
Advocates say that raising the cap would free up billions in dollars in credit to small business, thereby creating jobs and stimulating a fairly sluggish economy. Opponents, mainly community banks, say it’s simply a matter of fairness.
“We wouldn’t have any problem at all with raising the cap, if the credit unions would just be taxed like banks are,” Chris Cole, senior vice president and senior regulatory counsel at the Independent Community Bankers of America (ICBA), said. “If they got the full 27.5 percent, they would have as much commercial lending authority as one of the risk or cooperative banks in Massachusetts, and we just think that would be unfair.”
The push to raise that cap has been ongoing for about the last 10 years, said Ryan Donovan, senior vice president of legislative affairs at the Credit Union National Association (CUNA), but the fight has gained traction in recent years due to the economic climate.
The cap was instituted in 1998 as part of the Credit Union Membership Access Act, which essentially reversed a Supreme Court ruling that credit unions could not serve multiple fields of membership.
CUNA estimates that lifting the cap could circulate as much as $13 billion in new small business loans into the economy and create 140,000 new jobs nationwide. Rob Kimmett, senior vice president of public relations for the Massachusetts Credit Union League, said that lifting the cap could free up an extra $500 million and creating 5,000 new jobs in Massachusetts alone.
But that 27.5 percent cap would not automatically apply across the board, Donovan said. A credit union would have to first meet certain conditions: It must be well-capitalized, have at least five years of business lending experience, and must be within 80 percent of the cap for a year before applying for permission to go beyond the cap, he said.
Furthermore, he added, a credit union that has obtained permission would only be allowed to increase its business-lending portfolio by 30 percent year over year.
According to Donovan, of the approximately 2,000 credit unions that engage in small business lending nationwide, about 500 are actively managing their commercial lending cap, meaning they have either reached the cap and stopped lending or have exceeded more than 50 percent of their cap.
‘Lot Of Problems’
David L’Ecuyer, president and CEO of Central One Federal Credit Union in Shrewsbury, said that his credit union, which has been in the commercial lending business for about seven years, has passed the 50 percent mark.
“If you have an application for a really quality but larger loan, and you know that will get you closer to the cap or create a diversity problem, that’s an issue,” L’Ecuyer said. “The cap creates a lot of problems for a person or place trying to run a healthy business.”
Robert Cashman, CEO of Metro Credit Union in Chelsea, echoed that concern. “Right now, we’re at about 6 percent of assets, so we’re halfway there right now,” he said. “We’re looking at it from the point of view of trying to grow our business. We’d hate to start down the path of growing our business to find that we’ve maxed out and reached the cap.
“The environment is perfect, given what’s going on in the economy where companies want to grow and stimulate their own businesses,” Cashman continued. “What better time to allow credit unions the ability to fill the gap in the market to assist in this moving forward?”
“Our response has been that we are meeting the demand out there for small business lending,” Cole said. He added that non-banks, too, were meeting some of the demand that credit unions say has gone unfulfilled in recent years as underwriting standards have tightened.
He added, “I think underwriting standards are getting back to normal, so I don’t see any evidence that the banking and non-banking industries are not meeting the needs of small business owners.”
Email: lalix@thewarrengroup.com
