Why Support Increased Lending for Credit Unions
Oct 07, 2010 Joe Dejoseph
Credit unions operate like banks in many ways and offer similar consumer services offered by banks. However, less than one-third of credit unions make business loans and not all credit unions offer business services such as business checking accounts or merchant account services.
Currently, credit unions' small business lending is limited to 12.25 percent of their assets. The 12.25 percent cap hasn't changed since it was first adopted in 1998. But recent legislation passed by the House of Representatives and pending in the Senate would increase that limit to 25 percent and excludes small loans under $250,000 from counting against the cap.
In my post last month, Community Bankers Against Raising Business Lending Cap for Credit Unions, I discussed how the U.S. banking industry representatives disapprove of passing this amendment, claiming that credit unions already have an unfair advantage because they're tax exempt and because a higher cap could lead to irresponsible lending.
But according to the analysis of the Credit Union National Association (CUNA), credit unions would make a bigger contribution if Congress would pass a bill that would raise the cap on their business loans. CUNA economist Bill Hampel believes that the bill would free an extra $25 billion or so in loans over three years and the added funds would generate nearly 100,000 jobs the first year. Hampel has also stated that "easing the cap won't hurt consumers: new loans would come from money now in other investments."
Proponents of the increased lending cap for credit unions also believe the amendment will help to stimulate the economy while costing taxpayers nothing.
Raising the lending cap for credit unions will allow them to save small business owners money because of their nonprofit status, especially since credit union board members are volunteers. In contrast, bank board members often draw large salaries. Passing the amendment to raise the lending cap for credit unions will increase access to much needed capital, encourages entrepreneurship and promotes equity.