Faith-Based Business Lending Bill Gets a Third Go-Around to Help Credit Unions Offer Loans Without MBL Cap Concerns

WASHINGTON – It’s a small slice of a bigger pie but the Faith-Based Lending Protection Act is aiming to offer some relief to credit unions wanting to offer member business loans to religious groups without having to worry about exceeding the 12.25% MBL cap. The bill, H.R. 191, was reintroduced on Jan. 5 and is linked with the Credit Union Regulatory Improvements Act (CURIA, H.R. 3579), which, among other provisions, seeks to increase the limit on credit union MBLs to 20% of assets, up from 12.25% of assets. It also is tied to the Financial Services Regulatory Relief Act, which includes expanding the lending authority of credit unions from 12-year maturity limitations to 15-years. Ed Royce (R-Calif.) and Rep. Paul Kanjorski (D-Pa.) reintroduced H.R. 191, to amend the Federal Credit Union Act to exempt MBLs to faith-based groups from the MBL cap. Royce believes the bill puts food banks, soup kitchens, battered family shelters and other social service agencies one step closer to being able to get necessary loans from their local credit union. He calls it a “win-win” for everyone involved, especially for those in need. The Credit Union Membership Access Act of 1998 arbitrarily limited a federally insured credit union’s loans to members for business purposes at 12.25% of total assets, CUNA President/CEO Dan Mica said. Those provisions exempted many faith-based credit unions from the cap, but many of the member business loans they make are possible because other credit unions invest in the loans through participation agreements. When other credit unions participate in the loans, they are brought closer to their own 12.25%cap, making sources of capital for loans to nonprofit religious organizations more limited. Passage of the bill literally is an all or nothing move, said Gary Kohn, CUNA’s vice president of legislative affairs and senior legislative counsel. “These types of bills generally never move by themselves,” Kohn said. “It would be highly unusual for a bill like this to move on its own.” Kohn doesn’t rule out circumstances that may propel the bill forward should CURIA or Reg Relief run out of steam this legislative session. “The bill is not that controversial, it addresses an oversight,” Kohn said. Most credit unions are aware of the MBL cap, which is no more than 12.25% of total assets or 175% of net worth, whichever is less. Credit unions may grant no more than $100,000 or 15% of the credit union’s net worth, whichever is greater. Waivers to the cap can be submitted to NCUA’s regional directors and credit unions can use the SBA’s federal guarantee programs, for certain small businesses, to make loans that are also excluded from the MBL cap. While all credit unions have the authority to make business loans, most loans to non-profit religious organizations are originated by a handful of credit unions that specialize in this type of lending. However, the lending needs of non-profit, religious organizations regularly exceed the funding capacity of these specialized credit unions. Often, the specialized originating credit union will sell or participate parts of loans to other credit unions. Many credit unions buy these loans due to the loans’ safety and profitability and this “sharing” significantly increases the funds available for community projects. The $650 million Evangelical Christian Credit Union (ECCU) has been engaged in business lending to faith-based groups for more than 20 years and is ranked among the highest in the nation for MBL volume, according to Callahan & Associates, Inc. It sells more than 70% of the loans that it originates to other credit unions, said Mark Holbrook, ECCU president/CEO. “H.R. 1151 has a provision that said those credit unions that were already engaged in this type of lending would be exempted,” Holbrook explained. “This is all we do.” Holbrook said even if CURIA or Reg Relief doesn’t move forward this year, NCUA has offered some relief for credit unions that are purchasing loans through waivers that could help thwart the 12.25% cap. Still, like other services, credit unions are fulfilling an underserved niche. “Banks have a woeful track record with serving not-for-profit, faith-based groups,” Holbrook pointed out. “We’re hopeful that this and other important elements of CURIA and Reg Relief can be brought together for credit unions that would like to offer business loans to these groups.” Faith-based lending has been a success for $159 million America’s Christian Credit Union. It has generated more than $140 million in faith-based loans to multiple church groups in 46 states, said Mendell Thompson, president/CEO. “We’ve had no charge-offs,” Thompson told attendees at CUNA’s Future Forum last year. “We make loans to Protestant-based churches. Success depends on the products we offer and the service we provide. As churches see us, so do their constituents.” Kohn said CUNA is “very grateful to Rep. Royce for his continued interest in pursuing this initiative.” “We are hopeful that this will be the year that this legislation will become law and that credit unions providing this valuable service will be able to do so without fear of bumping up against the MBL caps,” Kohn said. -