Credit union advocates beat the bankers to the punch by talking to legislative aides Monday before bankers do their own Hike the Hill today where they will spend just as much energy lobbying against credit unions as they will tending to their own garden.
There’s a glimmer of optimism around S. 509, the Senate version of the bill that would raise the member business lending cap, because Senate Majority Harry Reid is a sponsor and has vowed to bring the bill to the floor despite off-the-chart opposition from bankers.
Because there is a sense of movement on S. 509, advocates pressed aides to Sens. Webb and Warner that the time is now to line up for the bill if they are serious about fulfilling one of their priorities: creating new jobs.
We estimate that raising the abominably low — and arbitrary — cap of 12.25% of assets to a modest 27.5% would create more than 4,500 jobs in Virginia, and 140,000 total around the country, in about a year.
Jason Clarke of DuPont Community and Glenn Birch of Virginia Credit Union brought home the point that the job creation would start right in the credit unions themselves. Birch noted that VACU will have to hire at least one person to establish a member business lending program, and Clarke said that if it weren’t for the cap, his credit union could justify hiring another loan officer. That possibility, though, led to a key refutation of one of the bankers’ arrows against the bill, that credit unions aren’t near the cap anyway so the legislation is unnecessary.
Clarke estimated that DuPont will reach the cap in three years, but that hiring another loan officer to fulfill the demand for the MBLs would hasten the arrival to half that time, leading to a personnel layoff at the least. Both emphasized that the existence of the harsh cap plays into strategic planning and curtailing of loan activity long before the limit is reached.
The banking aides couldn’t commit one way or another for the Senators, and all parties acknowledged that the bankers would have to be heard on Tuesday during their advocacy day. Sen. Warner has pledged to stop by our Congressional Luncheon on Wednesday, we can ask him then if he’s made up his mind!
Meanwhile, let’s make our Action Alert to our Senators on S. 509 go viral. Share with others at your credit union the following links: http://capwiz.com/cuna/home orhttp://bit.ly/MBL509. Staff, board, we even had one advocate ask his parents to do the action alert (they did). Let’s show our Senators we mean business!
QUICK RESPONSES TO ABA ATTACKS (AVAILABLE AT THE CUNA BOOTH AT THE GAC):
5 Answers to the Questions Bankers Want Congress To Ask
1. If 99 percent of credit unions are nowhere near their business lending cap, why should Congress more than double it?
Thousands – not a small percentage – of credit unions are now impacted by the cap. The cap constrains lending at nearly all credit unions engaged in business lending – even among those with relatively low MBL/asset ratios. That’s because ALL lenders must establish arbitrary operational buffers well below the cap to ensure that current borrowers have future access to credit (either new loans or credit line extensions) as their businesses grow. These artificial operational buffers significantly and unnecessarily constrain new loan growth and small business access to capital. Furthermore, the cap is an artificial barrier to entry – discouraging thousands of non-MBL credit unions from entering the business lending market.
Congress should raise the cap because doing so will inject up to $13 billion in new capital to small businesses and create 140,000 new jobs nationally in the first year after enactment – all at no cost to the taxpayer. A Pepperdine University Economist calls these estimates “conservative and well within the bounds of a reasonable projection.”
2. As tax-exempt institutions, why are some credit unions trying to expand loans to real estate developers, rather than fulfilling their mandate to serve people of modest means?
First it is important to note that Construction and Development loans account for just 1.2% of all credit union member business loans. The average size of credit union member business loans outstanding at year-end 2011 was $223,000 – a clear reflection that the overwhelming majority of credit union business loans are small business loans.
Second, an expansion of member business lending authority would actually help credit unions fulfill the mandate to serve people of modest means. Many modest means individuals run small businesses and need credit. This is especially true during times of economic dislocation and labor market weakness because unemployed and discouraged job seekers are much more likely to attempt to form businesses during these times. The Treasury Department’s 2001 comprehensive analysis of credit union business lending specifically showed that credit unions do a very good job of serving the business credit needs of low and moderate income business owners: Treasury found that 25 percent of member business loans were made to members with household income of less than $30,000 — and that these loans totaled 13 percent of the outstanding member business lending balances. Another 20 percent of the loans (with 15 percent of the outstanding loan balance) went to households with incomes reported to be between $30,000 and $50,000.
3. If some credit unions want to expand their business lending, why not have them convert to tax-paying community banks, as credit unions like Technology Credit Union and HarborOne Credit Union currently are doing?
Conversion of credit unions to commercial bank charters is undesirable because this activity results in the loss of significant societal benefits. Requiring credit unions to convert to obtain relief from the cap would unnecessarily (and perversely) remove as much as $10 billion in consumer financial benefits from the marketplace. It also would cause a reduction in significant non-financial benefits (such as one-member, one-vote democratic control and the depositor-owner’s ability to run for board seats.) These benefits come at a very small price – the Joint Committee on Taxation’s current estimate of the value of the credit union tax exemption was $400 million in 2011 – an amount equal to 0.03% of the $1.3 trillion federal budget deficit.
4. In a time of soaring deficits, why would Congress approve an increase in credit union business lending that would take business away from tax-paying community banks, and decrease tax revenues?
An increase in credit union business lending is unlikely to lead to a significant reduction in bank business lending. But even if credit union business lending does crowd out some bank business lending, that would not result in a reduction in bank assets; rather the bank assets would be redeployed from business loans to securities or perhaps other types of loans – leaving tax revenues little-changed. In the unlikely event that increased credit union business lending caused a reduction in bank lending, profits and tax payments, the increased credit union business lending would simultaneously increase tax revenues paid by the small businesses that borrowed from credit unions because credit unions typically charge lower rates on loans than banks do.
5. Why should members of Congress support H.R. 1418 and S. 509 if the credit union industry can’t answer these questions?
Credit unions have answered these questions. Repeatedly. The answers make it clear: Congress should strongly support H.R. 1418 and S. 509.