Credit unions have been trying for years to get legislation approved that would raise the cap on business lending.
Federal law enacted by Congress in 1998 restricts business lending by credit unions to 12.25 percent of their total assets. A proposed bill would raise that limit to 27.5 percent.
Previous attempts failed because of opposition from the banking industry, which argues there is no need for additional credit union commercial lending leeway.
It appears that the measure failed again this year to garner the needed backing to succeed as a stand-alone bill, despite bipartisan support in the House and Senate. New York Sen. Kirsten Gillibrand, a Democrat, had been a vocal proponent of the legislation, which she says could increase small business loans by $10 billion nationally, within the first year of enactment.
But despite apparent failure in 2012, there is hope in 2013 that credit unions may finally be able to compete on an equal basis with banks in terms of their commercial lending ability.
Massachusetts’ Democratic Senator-elect Elizabeth Warren, who was recently assigned to the banking committee, pledged during her campaign to help level the playing field for credit unions. Pushing for approval of an increase in credit unions’ commercial lending cap would be an ideal opportunity for Warren to advocate for the 200 credit unions in the commonwealth and their 2.5 million members.
Each year when the credit union industry pushes for an increase in the lending cap, the Independent Community Bankers Association (ICBA) claims that the legislation is unnecessary. The ICBA says that banks and non-bank lenders, such as the Small Business Administration, are already meeting the needs of small businesses. This year, the ICBA made a more bizarre claim, arguing that additional business lending powers given to tax-exempt credit unions would reduce tax revenues and pose new risks to the health of the credit union industry and the financial system as a whole.
Credit unions, which are nonprofit cooperative financial institutions owned by their members, are exempt from taxation at the corporate level. The reason is that as member-owned co-ops they don’t have the same means to raise money as banks do, such as issuing stock. In any case, credit unions do pay taxes – payroll taxes, real estate taxes and some other property taxes. In addition, dividends paid to credit union members are taxed as ordinary income.
And if it’s true, as the banking industry argues, that banks and other financing sources are already meeting small business lending needs, then banks should have little to fear if the credit union lending cap is raised.
The legislation specifies that credit unions seeking to increase commercial lending limits would have to be well-capitalized; have at least five years’ of business lending experience; and be at or above 80 percent of the current 12.25 percent lending cap for at least a year prior to applying.
The credit union industry estimates that passage of the Small Business Lending Enhancement Act could result in $13 billion additional small business lending in the first year, generating as many as 140,000 new jobs.
Giving credit unions the ability to help underserved small businesses would empower them to better serve their memberships and their communities. And it could give the economy a needed boost.
If increasing the cap to 27.5 percent is too drastic, then a more reasonable cap should be negotiated.
Massachusetts’ congressional and Senate delegation should do its best to ensure that 2013 is finally the year that credit unions have the same ability to provide loans to small businesses as their banking industry counterparts.
