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Community Bankers Against Raising Business Lending Cap for Credit Unions

Sep 20, 2010 Joe Dejoseph

The new Small Business bill contains an amendment that would more than double the business lending cap from 12.25% of total assets to 27.5% for Credit Unions. While Credit Unions officials continue to lobby Congress for this raising of the cap on the small-business loans, this new proposal has angered community bankers across the country.  Why would community bankers oppose legislation that most people might see as counter to the mood of the country - an environment where everyone is searching for those initiatives that will spur small business growth and reverse the downward trend in employment?

Unlike Community Banks, Credit Unions are non-profit organizations and do not pay many corporate taxes.  So many commentators that support the Community Bank view see that the raise in the business lending cap for Credit Unions will ultimately hurt small community banks the most. Joe Ellison, president of the West Virginia Bankers Association said: "The primary beneficiaries of expanded business lending authority are the large, aggressive, growth-oriented credit unions that have abandoned their mission of serving people of small means. The amendment adds to an already unlevel playing field by increasing the ability of tax-advantaged credit unions to take small business lending away from banks - the bread and butter of community banks across the country".

ank lobbyists have definitely been opposing any increase in the credit unions business lending cap. They say although this change might give more borrowing options to small business, it provides "unfair subsidies" to credit unions, particularly large credit unions. The American Bankers Association warns about what they called "the expansion on unfair credit union competition in business lending"

Although many larger credit unions do look a lot like banks with the same mix of products and service, many credit union supporters continue to stress the differences in how all credit unions serve their members and their communities.  But Community Banks would argue they also provide that same personal attention and service to their communities without the benefit of the credit union tax exemption.

So despite what seems to be rational argument against this legislation, the Credit Unions seem to be winning this battle - the amendment has recently passed the Senate with 60 votes, indicating that there is enough support for both the amendment and bill to pass the Senate.  If this legislation is passed and the cap is raised, it will just intensify the tax advantage debate, especially if it proves to favor the large credit unions over small community banks.