One year after Treasury report on business lending, MBLs still not risky

<p>ARLINGTON, Va. – NAFCU’s John Zimmerman remembers the headline in the Jan. 27, 2001 issue of American Banker clearly: “Credit unions no threat to banks, thrifts.” The article concerned the findings of the Treasury Department’s report, “CU Membership Business Lending” which found among other things, that credit unions are “not a threat to the viability and profitability of other insured depository institutions.” More than a year later, Zimmerman said that conclusion hasn’t changed. “Credit unions were no threat then, they’re not now, and they won’t be in the foreseeable future,” he said. Zimmerman predicted that member business loans will continue to be a small, but important part of credit union lending. “Member business lending has been around with credit unions for awhile. For those credit unions that do business lending, it’s very important and something they’ve done for a long time. It’s not as if with the passage of H.R. 1151, credit unions became entitled to do something with business lending that they weren’t doing before,” he said pointedly. Dr. Tun Wai, director of research and analysis for NAFCU agreed, and he added that he doesn’t understand how banks can argue that credit unions’ business lending activities are a threat. “At year end 2001, credit unions did $5.4 billion in member business lending, while banks did $982 billion. Just do the math, credit unions have just over one-half of one percent of the market,” he said. “It doesn’t matter what credit unions do – mortgages, credit cards, consumer loans – as long as credit unions are tax exempt, the banks say credit unions shouldn’t be involved in a service area,” Wai added. Wai said the numbers for credit unions might pick up as the economy picks up, but he expects they will still remain small. It’s a matter of supply and demand, he explained. Credit unions offer member business loans because their members want them. “It doesn’t have to be a large portion of a credit union’s loan portfolio as long as a significant number of members want business loans,” said Wai. As the Treasury report found, member business loans pose very little risk to the safety and soundness of credit unions. “Credit unions are very adept at knowing their members,” said Zimmerman. “That’s one advantage they have over other financials. That’s why the loans are called `member business loans.’ ” NAFCU has been actively involved with efforts to eliminate the member business lending limits imposed on credit unions through H.R. 1151 and to allow federally insured credit unions to participate in the Small Business Administration’s guaranteed loan programs. It’s also been lobbying for passage of the The Financial Services Regulatory Relief Act, H.R. 3951, which includes a provision that would exclude the MBL calculation to nonprofit religious organizations, a provision originally covered separately under Rep. Ed Royce’s (R-Calif.) “ Faith-based Lending Protection Act.” NAFCU is leaving its options open on ways to pursue these goals. “If something’s not moving legislatively on the Hill, then we’ll have to pursue another track – regulatory,” said Zimmerman. -</p> <p>[email protected]</p>