A year after the Credit Union Small Business Jobs Creation Act was introduced to raise the member business lending cap from 12.25% to 27.5%, the urgency to boost that threshold is just as fresh as the day the most recently version of the proposed legislation debuted on Valentine's Day in 2013.
Introduced by Rep. Edward Royce (R-Calif.), the act would give the NCUA Board the authority to approve an application by an insured credit union to make one or more member business loans that would result in a total amount of such loans outstanding at any one time of up to 27.5% of the cooperative's total assets. That credit union would have to meet certain specified safety and soundness criteria in order to bump up its MBL cap.
The NCUA Board would also develop a tiered approval process, including lending standards, under which an insured credit union gradually increases the amount of member business lending in a manner consistent with safe and sound operations.
Expanding member business lending authority is so much of a priority for CUNA that the trade group considers it one of the motivators for enhancing the credit union charter, said Pat Keefe, CUNA vice president of communications.
"There are two things we're working towards enhancing the credit union charter – increasing member business lending authority and the second is the option for credit unions to have supplemental capital," Keefe explained. "There is legislation pending on both of those issues and we're continuing to advocate for those. So, we haven't left (the MBL cap issue) behind by any means."
In fact, enhancing the credit union charter will be one of CUNA's top five issues discussed during this week's Governmental Affairs Conference in Washington, Keefe noted.
Likewise, raising the MBL cap to help America's small businesses remains a priority for NAFCU, said Brad Thaler, that trade group's vice president of legislative affairs.
"Providing relief for those credit unions at or near the artificial cap is a key part of NAFCU's five-point plan for regulatory relief," Thaler said. "We continue to work with our supporters on Capitol Hill to advance this issue, whether by seeking ways to advance legislation to raise the outdated cap, or to seek other smaller approaches to provide relief with certain types of loans."
Furthermore, regulatory flexibility for MBLs is also part of NAFCU's "Dirty Dozen" regulations, Thaler noted.
The credit union industry is still evolving with growing their business lending programs, said Kent Moon, president/CEO of Member Business Lending LLC, a West Jordan, Utah-based CUSO. Only about 7% of the credit union industry is bumping up against their MBL caps.
"This is not say to we should not press to increase the MBL cap. It means we should press harder to do so. With more potential for growth comes more opportunity," Moon said.
Still, managing the cap is a much more pressing issue, he offered.
"Loan participations and government guaranteed loans are excellent cap management strategies," Moon noted. "As credit unions become more aggressively involved in business lending, cap management is a more pressing issue."
In Michigan, credit unions filled the financing void left by bank troubles and consolidations in recent years, said Bill Beardsley, president of Michigan Business Connection LC, an Ann Arbor-based commercial lending CUSO that serves more than two dozen credit unions and manages more than $250 million of loan assets. Given this success in growing loans, raising the cap is as critical now as it has ever been, Beardsley emphasized.
"There is absolutely no doubt that some of the most successful credit unions in Michigan now need to constrain the amount of capital available to their members due to the cap, and many of the smaller credit unions just don't get into business lending due to the cap," he said.
Opponents of raising the cap often look at this at the industry level, he explained.
"They argue, and in fact it is true, that there is plenty of industry capacity to fund business loans even with the current cap," Beardsley said. "But that's not how loans are made. Loans are made by credit unions to their members in their communities, not by industry capacity."
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