Congress has two opportunities this year to reach back to the Main Street voters who elected them. Neither costs taxpayers a dime. Two bills would enable credit unions to provide affordable capital to consumers and to small businesses. It makes sense, then, for Congress to act this year to enact the Capital Access for Small Business and Jobs Act (H.R. 3993) and the Small Business Lending Enhancement Act (H.R. 1418 and S.2231)
Consumers are migrating to credit unions to escape the banks that have denied them loans. Those new members are finding in credit unions the same safe and sound harbor for their money that our long-term members have enjoyed since the Great Depression. They're also finding personal service, advanced technology, thousands of networked ATMs they can use surcharge-free, shared branching and a full suite of advanced banking services offered in cooperative environments where the local connection is as strong as ever.
Yet the credit union movement faces a mixed blessing. Overly rigid and antiquated capital requirements are preventing many well-capitalized credit unions from providing an even higher level of service to the very consumers who are seeking us out. Those regulations–limiting our ability to lend out more of our assets to small businesses as well as to raise supplemental capital–are both outdated and unnecessary.
Current law restricts credit unions' ability to raise capital beyond their retained earnings. The influx of new deposits threatens to outpace growth in retained earnings. Credit unions are at risk, then, of having to turn away deposits and restrict lending in order to protect their regulatory capital ratios. Effectively, credit unions are penalized for their own success and consumers ultimately lose.
We are already aware of this happening in the Northwest.
In order to maintain their net worth ratios, some of our credit unions report they've already made or considered difficult decisions about services. These actions include reducing dividend rates for deposits to below market levels, discontinuing short-term certificates of deposits for new members, jettisoning large deposit incentives and even asking members to deposit in competing credit unions.
With access to supplemental capital, these well managed credit unions could instead be offering even better interest rates, opening new branches, expanding member services and hiring more staff.
The Capital Access for Small Businesses and Jobs Act would empower the NCUA to allow well-managed credit unions access to supplemental capital. Credit unions are the only federally insured financial depository institutions that do not have access to supplemental capital. This legislation gives credit unions regulatory parity at a time when consumers want our services more than ever.
Access to supplemental capital will position credit unions to offer affordable credit to members and small businesses, which will stimulate the economy and grow jobs. It will position credit unions to weather further, inevitable economic downturns. It will enhance the safety and soundness of the entire credit union system by providing a buffer against operating losses and against claims on the insurance fund.
This legislation is a bipartisan effort, supported by Democrats and Republicans, as well as credit unions and their regulators.
Also sitting on Congress' desk is an issue that thousands of Main Street consumers have already emailed, called and written their congressional representatives and senators about, requesting their support.
The Small Business Lending Enhancement Act will remedy another outdated regulatory limit on how much credit unions can lend to small business owners. Current law allows credit unions to lend 12.25% of their total assets to members hoping to open businesses and create jobs. The Small Business Lending Enhancement Act will raise that limit to a more reasonable 27.5%. Existing law has no fundamental basis for existence. It is purely the result of Wall Street bankers who successfully lobbied Congress to restrict competition in the marketplace.
We stand ready to make loans that studies show would create more than 7,500 new jobs in the Northwest in the first year alone. That legislation, too, is at no cost to taxpayers. It should be taken seriously at a time when stagnant unemployment continues to put a strain on government budgets.
Congress should act now.
Troy Stang is president of the Northwest Credit Union Association.
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