NCUA: Risk Concentration, Regulation Work at Any Business Lending Level

While raising the 12.25% member business lending threshold has been a front burner issue for the credit union industry for some time, the NCUA said it has always placed a more pressing focus on regulation and due diligence.CUNA recently urged the U.S. Senate Committee on Small Business and Entrepreneurship to reconsider increasing the cap to 20%, saying if the limit were eliminated, credit unions could lend up to $10 billion during the first year. The industry has been subject to the statutory cap for the last 10 years, wrote CUNA President/CEO Dan Mica in a March 19 letter to Committee Chairwoman Mary Landrieu (D-La.) and Ranking Member Olympia Snowe (R-Maine).Mica argued that in the absence of a statutory cap, credit unions would still be subject to safety and soundness regulation and examination by their state or federal regulators.“Contrary to the rhetoric by those who oppose credit union business lending, eliminating the cap will not lead to unlimited business lending by credit unions,” Mica said. “[However], at a time when small businesses have fewer and fewer places to turn for credit, it makes absolutely no sense to arbitrarily restrain the ability of credit unions to serve their business-owning members.”Meanwhile, the NCUA has maintained it is the agency’s duty to ensure that member business lending programs are strong and compliant.“NCUA has always regarded the aggregate cap on member business lending as less significant in the overall scheme than our ability to regulate loans to one borrower and other risk concentration factors,” said John McKechnie, NCUA director of public and congressional affairs.According to CUNA, the average credit union business loan is under $200,000, an amount more likely to be used to make payroll, stay in or expand a business, not to build shopping centers or sports arenas. As further proof that the 12.25% cap should be raised or eliminated, Mica compared the net charge-off rate for credit unions and banks, which in 2008, was 0.84% and 1.24%, respectively. That same year, the net charge-off rate for member business loans was 0.33% and 1.11% for bank business loans.The NCUA continues to keep its eye on the big picture.“Any credit union member business lending program can be conducted in a safe and sound manner if proper supervisory safeguards are in place, and NCUA has communicated this to Congress on a number of occasions,” McKechnie said.–[email protected]