House Bill Would Lift Loan Term Limits

NAFCU and CUNA on Tuesday urged passage of a bipartisan bill filed in the House which once again attempts to raise loan term limits and exclude more loans from the Member Business Lending cap.

The bill filed by Brian Fitzpatrick (R-Pa.) and Vicente Gonzalez (D-Texas) would drop language that limits most credit union loans to terms of 15 years or less, and instead allow NCUA to set limits at its discretion. First mortgages for primary residences are already excluded from those limits, but credit unions want to be able offer longer-term loans of 20 to 30 years for second homes and commercial loans, either as first lien or second lien.

Businesses seeking those longer-term loans for lower monthly payments have been locked out of credit unions, and have been forced to go to banks.

“Allowing credit unions to make loans with maturity limits of more than 15 years will help them provide more opportunities for members, including in the student loan space,” said CUNA President/CEO Jim Nussle said.

“The current maturity limit is a barrier keeping credit unions from providing additional affordable credit, and we thank Reps. Gonzalez and Fitzpatrick for their bipartisan work to solve this issue,” Nussle said.

Credit unions have also been trying to ease limits on commercial lending imposed by caps on Member Business Loans.

Out of 5,175 credit unions reporting in March, 1,653 credit unions had $96.3 million in Member Business Loans, or 9.9% of their total loans. The statutory cap is 12.25%.

Credit unions are already able to exclude loans that are under $50,000 from their caps under a de minimis provision. The new bill would raise the exemption to loans under $100,000.

NAFCU President/CEO Dan Berger said the bill would provide credit unions with increased flexibility to encourage the growth and success of small businesses.

“Credit unions have long sought to provide essential loans to small businesses – including many that are minority-owned or underserved – but have been constrained under the archaic 15-year loan maturity limit and outdated member business lending definitions,” Berger said.

The bill also has a provision that would amend the definition of “community financial institution” under the Federal Home Loan Bank (FHLB) Act to include credit unions. Berger said changing the definition would “ensure that more credit unions can offer affordable, high-quality mortgage loans to consumers by expanding eligibility for FHLB membership.”

NAFCU has been campaigning since at least 2018 for these changes.

In May 2020, then-NCUA Chair Rodney Hood testified before the Senate Banking Committee with requests that included raising the Member Business Lending cap to 20% and permanently increasing the federal credit union loan maturity limit from 15 years to 30 years.

In March, Senate Banking Committee members Tim Scott, R-S.C., and Catherine Cortez Masto, D-Nev., introduced legislation that would give the NCUA greater flexibility in setting loan maturity limits under the Federal Credit Union Act.