Bankers Will Crow, but NCUA's MBL Revisions Are Good for Credit Unions and Consumers

Easing the restrictions on member business lending that were part of the 1998 Credit Union Membership Access Act has been one of the dozen or so federal charter enhancements NAFCU has sought in recent years. That’s why we are pleased to see that the NCUA Board plans to take up-and hopefully adopt-its proposed MBL revisions at this week’s open meeting. NCUA’s reexamination of its rule, coupled with the Small Business Administration’s decision earlier this year to open up the 7(a) loan program (which was as strongly advocated by NAFCU), will go a long way toward meeting our goal of giving credit unions the tools they need to provide needed business loans to their members. Much of the credit for revamping NCUA’s MBL rule must go to the NCUA Board itself, which has made promulgating regulations that are both flexible and market-oriented a hallmark of its regulatory philosophy. The soon-to-be-finalized update of the MBL rule is a good example. In short, we fully agree with the NCUA Board’s assessment that its proposed rule will provide greater opportunities for credit unions to respond to their members’ aspirations of starting or improving a small business. We also agree with the NCUA Board that the proposed changes will not place undue risk on the National Credit Union Share Insurance Fund. It is not surprising that the bankers have criticized NCUA’s proposed MBL rule, and I have absolutely no doubt we will hear a good deal more from them on this subject. The Treasury Department also submitted a comment letter to NCUA raising strong concerns with parts of the proposed rule. However, the original sponsors of CUMAA, Rep. Steve LaTourette, R-Ohio, and Paul Kanjorski, D-Pa., also submitted a comment letter to NCUA with a strong and unambiguous endorsement for the proposed revisions to the rule. It is important to once again look at the numbers for credit union business lending; when you do, it is difficult to understand the bankers’ concerns in light of the realities of the consolidated credit union balance sheet. At year-end 2002, banks had $953.6 billion in commercial loans, while federally insured credit unions (FICUs) provided $6.7 billion in loans to members for business purposes, or just seven-tenths of 1% of the bank total! Some 1,500 FICUs, or about 16% of the nation’s 9,500 FICUs, are doing some form of business lending, and when added all together, federally insured credit union business lending remains less than 2% percent of total loans. When the similar numbers lead the Treasury Department to analyze MBLs in its 2001 study, it concluded in its study that credit union member business lending is “not a threat to the viability and profitability of other insured depository institutions.” In short, this final rule will not dramatically transform the credit union balance sheet or result in any significant business lending competition with banks. The fact that the NCUA Board has approved seven state MBL rules that are exempted in some significant ways from the current rule begs the question that Board Member Deborah Matz first asked: why not look at those state rules as potential models for making constructive changes to NCUA’s MBL rule? This makes the rule an important dual chartering issue, and NCUA is in a position to level the field for the benefit of all credit unions – most -especially with the elimination of the requirement for the personal guarantee-while at the same time allowing states to continue applying for separate exemptions. It is obviously important to acknowledge the thoughtful concerns raised by Treasury Assistant Secretary Wayne Abernathy to the proposed NCUA MBL rule, yet when NCUA was approving the various state MBL rules, there were no objections from Treasury. All three NCUA Board members have clearly articulated support for changing the MBL rule within the constraints of CUMAA. Each board member approaches the proposed rule and its likely final version from his or her own experiences, and together their ideas make for a most persuasive case in favor of the suggested changes that have been put on the table. In particular, Vice Chair JoAnn Johnson and Board Member Matz have taken leadership positions and devoted significant energy in bringing the NCUA Board to this point. In conjunction with the important success of the Access Across America initiative, Chairman Dennis Dollar has noted that access to start-up capital for small businesses in underserved areas is a missing component of all the government programs he has observed. The chairman has encouraged credit unions that adopt underserved areas to explore filling this start-up capital void that undeniably exists in far too many communities across our country. Vice Chair Johnson chaired an NCUA internal working group that has made a comprehensive review of the MBL rule. Mrs. Johnson has dovetailed her efforts with the Bush Administration’s economic initiatives to strengthen small businesses. As she has reminded us, 99% of all employers fall under the rubric of “small” and these businesses: 1) employ half the private workforce, 2) generate half of our GNP and 3) create two out of three jobs in our economy. In addition, 40% of these businesses are owned by women and 15% by minorities. Board Member Matz first discussed the issue of member business lending with many in the credit union community and came to the conclusion that changes needed to be made, especially in the context of the NCUA Board approving a variety of state MBL rules. In February of this year, Mrs. Matz announced the Partnering and Leadership Successes (PALS) initiative to promote and facilitate the sharing of best practices among credit unions. PALS complements Access Across America and provides a forum for highlighting innovative solutions to problems credit unions face on a daily basis. Member business lending fits well into the PALS framework and reinforces the fact that MBLs can be a tool for credit unions to offer affordable financial services to meet members’ needs now or in the future. Regarding the specifics of the rule, we support the proposal to exclude loan participations from the calculation of the aggregate MBL limit. Notwithstanding Treasury’s comments, we believe the final rule will create more diversity within and among credit unions in this type of lending, thereby enhancing overall safety and soundness. Both sides of a transaction benefit regarding participation loans, with the credit union that selling MBL participations generating liquidity, and while the purchasing credit union is augmenting its investment portfolio. The final rule will change requirements, make clarifications and simplify or remove unnecessary provisions now in the MBL rule. We believe that this rulemaking is what regulatory agencies need to be doing more of to remove burdens and create more opportunities to contribute to our economy. Member business lending is, and will likely remain, a “niche” market for the credit union community. But even if this rule leads to just a few more credit unions providing the start-up capital to businesses in areas that need financial services the most, it is worth it. It also would convincingly refute the bankers’ arguments that they adequately satisfy the borrowing needs of America’s business owners and that credit unions should remain on the sidelines, despite their members’ legitimate needs for capital to start or expand a business.