League Director of Governmental Affairs Karin Sherbin submitted the following report of a meeting in Roanoke with an aide to Sen. Warner, Drew Densmore, who noted that on Tuesday he met with a Martinsville DuPont Credit Union representative, while another Warner aide met with staff from DuPont Community (they are hearing us now!).
Who went: Steve Elkins and Barry Smith from DuPont Community Credit Union. Dan Sandberg and Daryl Brubaker from Park View Federal Credit Union. They brought Eric Good, the owner of an excavation and grading company who wants to purchase a small mining company to complement his current business, but cannot obtain financing for the purchase through Park View due to the cap.
Highlights: ParkView reported it was involved in MBLs before the cap, and found itself near the cap at its inception. The staff is constantly updating themselves on where the credit union stands on member business loans. The result: Park View cannot use the money it has on hand to service its business members as well as they desire. One option – besides saying no – is to fish for a participation loan partner.
Steve Elkins, of DuPont Community, noted that doing so means adding to the cost of the loan to the recipient, investing more time in due diligence, increasing risk because of going outside of their credit union, and taking dollars out of the community.
Park View’s Dan Sandberg added that If the business owner wants to make changes to the participation loan, it then becomes a much more complicated process because ParkView cannot say yes on its own.
Park View cannot advertise its MBL program because it cannot fulfill the demand due to the cap.
Park View member Eric Good said he went to Park View after his bank made it difficult for him to get financing for his first truck.
He then he sat down with Park View’s CEO and explained his business and got a loan. He has been obtaining loans from Park View for subsequent expansions until now.
“Everyone’s looking for ways to keep our economy going. The country was built on small business. Henry Ford started with a small business,” Good noted, adding that raising the cap would add capital to the system without using taxpayer dollars.
He said because of the cap, he will either not purchase the complementary business, or he will have to try to obtain financing from a bank. He prefers working with the credit union, where he has a relationship already.
Park View’s Sandberg added that his credit union might have $12 million to loan, but because of the cap, PVFCU cannot give Good the money he needs for his business. The bitter irony: the credit union could, however, loan him money to buy matching Corvettes, but they can’t help him with a needed business loan.
Sandberg said ParkView’s average MBL is $70,000.
“There is a huge demand for loans that size. We’ve had members asking for those loans who were rejected by banks.”
The business owners see the credit union as their partner, and the cap limits Park View’s ability to be a partner in the future.
“Member business lending hasn’t been a high-risk activity for us. We have relationships and even in bad times we can help our business owners push through.” He said that turning down members for business loans because of the cap “can be a confidence killer” with the member.
DuPont Community is only halfway at the cap, but is already hampered by the limitation. The cap limits the flow of capital into the marketplace and prevents the credit union from investing in the infrastructure to operate a robust member business lending program.
“It’s like starting a business and saying you can take it only so far,” Steve Elkins said. And at 50% capacity, DuPont doesn’t want to do participation loans because that would mean denying local businesses capital. “We want to be good community stewards,” he said.
The government’s limit on member lending “doesn’t make sense.” What’s more risky, $75,000 on an excavator or a mortgage? “You can get way over your head on mortgages,” Barry Smith noted. But the government is steering credit unions into making an $800,000 loan on a house, instead of a loan on a business.
He also argued that the cap has to be raised to take into account the current price on equipment. A pickup truck for a business runs $40,000, he noted.
Said Elkins: “We should be able to look at larger loans based on our capital.”
DuPont also has helped its business members tide themselves over during the recent hard economic times. A small animal clinic was considering laying off employees, but the credit union restructured the debt to save jobs. “It pains us to be painted (by the bankers) as not being good at member business lending,” Elkins said.
Smith added that currently he’s working with a business owner whose bank loan is due for re-pricing, and his bank isn’t calling him about it. The businessman came to DuPont for help. “We’ll step in. He still hasn’t heard from his bank.”
Elkins, a former banking consultant, said, “What we do and how we do it is not inferior to the banks. I enjoy this business model.”
Elkins maintained that the cap is the reason why more credit unions aren’t in member business lending.
Get involved: Write Sens. Webb and Warner about Senate Bill 2231 and ask them to support this measure that would lead to more jobs!
League Senior Vice President David Miles and representatives from BayPort Credit Union accompanied business owners with MBLs from BayPort to speak with Sen. Webb’s aide, Charles Stanton, in Virginia Beach.
David reports: “In a meeting this morning with Senator Jim Webb’s regional representative, three small business owners in the Tidewater area detailed how they have created more than 70 new jobs as a result of loans obtained from their local credit union. Each unique story gave insight into the difficult credit market faced by small business owners in the last few years and how credit unions have been stepping up to provide much-needed capital.
The first local business owner went to a local bank more than three years ago trying to refinance an existing business loan to obtain a lower payment and interest rate as rates declined.
After being turned down by the bank, she approached Bayport Credit Union with a business plan to refinance, obtain a lower rate and payment, and use additional capital alongside the improved cash flow to expand her business. She has expanded her day care business from one center to three and now employees 48 in her place of business. Previously, she only was providing employment to three individuals.
The second business professional explained to representatives in Sen. Webb’s office, that she, too, had sought bank financing and business consulting advice from local banks without success. She explained how she, too, was operating a day care center in property she was leasing.
Unfortunately, the owner of the property was in foreclosure. With an excellent cash position, she wanted to expand her business by buying the building. Bayport provided the necessary advice and added capital to facilitate the purchase. She now employees 17 people and is planning a second center. Prior to the credit union loan, she was the business’s sole employee.
The third entrepreneur sought bank financing for a start-up business. After extensive research and the formulation of a sound business plan, she was unable to persuade local banks to accept her application.
Bayport, again, understood her needs and provided the necessary loan for her to open her first hair salon. Now, at just 23 years of age, she owns a successful business that employees eight additional stylists.
The net result – 71 new jobs in the Tidewater area as a result of just these three small business loans provided by a credit union.
Each business owner fully endorsed and supported SB 2231, which allows credit unions to make more business loans thereby creating jobs and giving small operations added sources of funding and capital. Bayport officials reported that they are at 65% of the business lending cap imposed under current law.
They will be at risk of having to curtail their successful commercial lending program without Congressional action to raise the limit. It is estimated that 5,000 new jobs can be created in Virginia if credit unions are permitted to lend $500 million in year one of raising the cap. Our communities and our businesses need this legislation.”
Take action now and contact Sens. Webb and Warner about SB 2231!
House Majority Leader Eric Cantor (pictured left) greets longtime campaign volunteer Bill Dawson, of Henrico Federal Credit Union. Though Congressman Cantor continues to say he is a fan of credit unions, he declined to add a key credit union member business lending measures to his recent JOBS Act.
This year more of our federal lawmakers joined with Rep. Gerry Connolly, the sole Virginian sponsor of H.R. 1418, in talking about member business lending at the League’s annual Congressional Luncheon in Washington.
Unlike past years, many of the legislators noted that credit unions provide business lending as they made comments to nearly 130 credit union advocates from across the state, and Tennessee too.
House Majority Leader Eric Cantor led the delegation with remarks at noon. “You are Main Street, the link between businesses and families,” he acknowledged, though he had declined to put in his JOBS package the bill to raise the cap on member business lending.
Rep. Bobby Scott thanked credit unions for providing affordable services, including member business lending. He also said that regulations for credit unions shouldn’t be as severe as the rules governing the “too big to fail” banks.
Rep. Scott Rigell, nodding to the Project Zip Code number read in the introductory remarks for him, said he had 300,000 good reasons to be at the luncheon. “Thank you for the critical rol you play in small businesses,” he said. “I respect the services you provide. I appreciate what you’re doing to help our economy.” He also noted that the house this week passed his own economic development bill that would remove a federal block on Accomack County’s efforts to develop land as part of a research park near NASA Wallops Flight Facility. That bill now moves to the Senate. He said passage of his bill shows that “there are rays of hope of bipartisanship in Congress.”
Rep. Rob Wittman prefaced his remarks by paying respects to Langley CEO Jean Yokum, who is retiring in July. “I thank her for her leadership. She’s a real icon.”
He also made a bow to what he called “The role credit unions play to make sure that capital flow is maintained.” He added that he’s been a credit union member for 29 years. He acknowledged that credit unions are lobbying for H.R. 1418, the MBL cap bill. “I have talked to people in leadership in the Financial Services Committee and House to make sure there is at least a consideration of this issue. It’s a challenging issue. I appreciate you’re meeting a need and you wanting to get capital out to businesses.”
He also said that he and credit unions have common concerns, citing his co-sponsorship of H.R. 3461, the bill that require examiners to cite a basis for their findings and provide an ombuds office for appeal. Bankers also support the bill. Reps. Connolly, Forbes, Hurt and Wolf are also co-sponsors.
Rep. Connolly was introduced to thunderous applaud for his willingness to co-sponsor the MBL cap bill in two different sessions of Congress. “I am so proud to stand with credit unions,” he said. “It’s not a matter of favoring one type of financial institution over another. I wanted to support anyone who was providing capital to small businesses. I hope this year we’ll have success” on the MBL bill. He noted that he belongs to the two credit unions serving lawmakers and legislative staff.
Rep. Morgan Griffith lauded credit unions for their great work in lending money and to their commitment to the communities they serve. He also paid special note to Eastman Credit Union, a Tennessee credit union with branches in Virginia, for its support of a student art competition that the Congressman sponsored.
Rep. Robert Hurt, who is the only Virginia Congressman on the House Financial Services Committee, applauded credit unions for being so well-organized on advocating on their issues. He called credit union staff “people who are dedicated to your communities.”
He referred to the JOBS bill passed by the House as legislation to make it easier for businesses to get capital. Again, that package of bills contains a provision to help community banks but not credit unions. He averred, “One thing is for sure: There is no government program or stimulus that is more effective in creating jobs than having the private sector put capital on the street. That is what you represent. I value your vital role in the economy.”
Next up was Sen. Mark Warner, the lone Virginian on the Senate Banking Committee. He was introduced by his former transportation secretary and current League lobbyist, Whitt Clement, who promoted S. 509 in his remarks. The Senator acknowledged the issue, repeating the reference to S. 509 that he had made last year. “I am under prayerful consideration.” Mindful that 509 may come to a vote this year in the Senate he added, “My ability to punt is coming to an end. But I still have a few more days of prayerful consideration.” He added his kudos to credit unions ”I appreciate as well all the great things that credit unions have done.” Remarking that he had spoken the same day to 1,000 bankers at the ABA convention, he added, “You have such commonality.”
[If you contacted Sen. Warner on S. 509, you should receive an answer that reads, in part: "Even though the economy has shown some signs of recovery, many small and medium-sized businesses continue to struggle from the lack of credit supply from banks and the disappearance of the shadow lending system. Credit unions are an important source of credit to small businesses, and their loans to small business members rose sharply during the last few years." ]
Sen. Warner addressed another major concern of credit unions, over-regulation. He said he has spent 1 1/2 years working on what he calls Pay-go for regulations: if one regulation is added, one has to be dropped. He also wants to see reviews of regulations three years after enactment to determine if they are fulfilling their mission.
He conceded that portions of the Wall Street reform package known as Dodd-Frank were aimed strictly at the big banks, but credit unions and smaller banks are saying that examiners apply the more stringent rules meant for the larger institutions to the small ones too as best practice standards. “That was not the intent,” he said. “We stand committed to getting that fixed.” He again implored the audience members to hold lawmakers feet to the fire to get the job done on the deficit and budget issues, challenging the electorate to fire lawmakers if they don’t succeed.
Rep. Bob Goodlatte started his remarks by saying, “I am proud that the credit union league is headquartered in my district, and that every year there are enough of my constituents at the luncheon to fill two tables. It is so important for you to be here.” He also noted that he keeps his campaign money in a credit union.
“I’ve worked with you on your common bond and bankruptcy bills,” he said in a nod to past support of bills that credit unions supported that made it to the House floor. He cited member business lending as “important to our communities and economy. I believe there are ways forward here. One way may be the House passing S. 509. Another way forward may be moving it on legislation that deregulates financial services,” such as a bill un-doing Dodd-Frank. “We ought to be able to do what should be done — lend to people with great ideas to grow the economy.” He pledged to look for a legislative opportunity where the MBL cap issue could be addressed.
Rep. Randy Forbes noted that what he most appreciates about credit unions is them “not letting the people you serve become numbers.You know their names and you have relationships with them.” He took a macro view of what is happening in Washington, saying there are three main issues that should be garnering the focus of lawmakers: gas prices that harm the economy; regulators who walk into businesses assuming they are run by crooks; and the “sleeper” issue of sequestration, which would force a half-trillion dollar budget cut on national defense.
Representative Frank Wolf was represented at the luncheon by his banking aide, Craig Whitham. Rep. Jim Moran had planned to attend but last-minute business on the House floor changed his schedule. Sen. Jim Webb neither attended nor sent staff.
We should note that all the offices of our federal lawmakers saw League and credit union advocates before the luncheon. On Monday advocates Jason Clarke of DuPont Community and Glenn Birch of Virginia Credit Union joined League staffer Karin Sherbin on visits with the banking aides to Sens. Webb and Warner. Sherbin continued the mini hike the hike on the House side that day, joined by BayPort and Board member Stan Leicester in the visit with Rep. Wittman’s aide. On Tuesday and early Wednesday, advocates from Member One and DuPont Community met with Reps. Goodlatte and Hurt.
We thank the legislative aides for making time to see us this week, and we thank the credit union volunteers who also visited aides or Congressmen. As we all know, the MBL bill is a very difficult issue for most of our lawmakers due to strident banker opposition, and it will take all of us working together on a consistent basis to have a fighting chance to gain support for our legislation. We made a lot of progress this past week. Upward and onward!
League representative Karin Sherbin continued the mini-hike on the House side, joined by Board member Stan Leicester of BayPort at the meeting with the banking aide of his own Congressman, Rob Wittman. BayPort does MBL, and Leicester talked of demand and how some of their members were unable to get capital at banks.
Aides were asked if they had heard from small business owners complaining of lack of access, and they acknowledged yes. The credit union advocates were to the point: there’s an unmet need for capital, everyone agrees more capital is needed, and credit unions can fill part of that need at no cost to taxpayers. For legislators that ideologically decry big government and regulations, the added argument was that the current cap is an example of the federal government mucking up the works. We argued that the current cap hurts job creation way before credit unions bump into it.
We asked for cosponsorship of the House companion bill, H.R. 1418, or support behind the scenes by way of delegation members asking leadership to move the bill. No aide voiced optimisim that their Congressman would do either.
H.R. 1418 had a hearing last fall in a subcommittee of House Financial Services. The aides advised that a committee markup on the bill would signal movement for the legislation, as opposed to just the hearing. (to learn more about the House and its procedures, go here: http://clerk.house.gov/committee_info/commfaq.aspx).
We do have one Congressman willing to face banker heat for supporting H.R. 1418. The aide for Rep. Gerry Connolly said he and the Congressman know that the bankers will be in their office today railing against the Congressman’s cosponsorship of the credit union legislation. The aide assured that Connolly will stand up to the bankers if he believes a credit union bill is good public policy. We all need to thank Connolly when he appears at the Congressional Luncheon Wednesday. Be prepared to applaud long and loud for him. And thank you to the credit union advocates who volunteered on his St. Patrick’s Day fundraiser; we know of CU volunteers from Belvoir who helped at the event.
House banking aides seemed more receptive to H.R. 3461, the bill that would require regulators to cite specific rules when issuing a finding from an examination. The bill also would create an ombuds office to hear appeals of findings. The House bill, H.R. 3461, was introduced by Rep. Shelley Moore Capito, a leader on House Financial Services. The bill has 113 co-sponsors, including the following Virginians: Connolly, Forbes, Hurt, and Wolf.
On the Senate side, only three legislators have signed on to S. 2160, none from Virginia.
Bankers support the legislation.
Rep. Robert Hurt’s aide said that consumer bureau chief Richard Cordray is expected to appear before House Financial Services in the near future. He invited credit unions from Virginia to voice concerns/questions they may have for Cordray and Rep. Hurt, who sits on the committee, will try to get them addressed. Please send questions or concerns to ksherbin@vacul.org so we may pass them on in one package.
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 or http://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!
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.
CUNA and its state leagues plan to raise $600,000 so credit union volunteers can build special interactive playgrounds at local children’s hospitals during this summer’s Republican and Democratic National Conventions.
The quadrennial charity efforts help build both national exposure at the penultimate political gatherings and critical aids for children’s hospitals, the favored national charities for the credit union movement.
CUNA and the League of Southeastern CUs have budgeted $300,000 to build a state-of-the-art playground at All Children’s Hospital in Tampa, Fla., site of the Republican National Convention. And CUNA and the Carolinas CU Foundation are raising a similar amount to renovate a rooftop playground at Levine Children’s Hospital during the Democratic National Convention in Charlotte, N.C.
CUNA and the leagues have been building “stay-behind” charitable projects at the parties’ national conventions since 2000.
It’s true that we can’t outgive the bankers when it comes to supporting political campaigns; they’re quite good at putting their deep pockets to work!
Congressman Connolly has proven to be a staunch supporter of credit unions, even signing on as a co-sponsor of H.R. 1418, key credit union legislation that would raise the current cap on member business lending to a more reasonable level.
Raising the cap will allow credit unions to help small businesses add desperately needed jobs and grow our economy. This common sense provision could provide up to $13 billion to small businesses in the first year alone and create over 140,000 new jobs at no cost to taxpayers.
Credit union supporters can drop a quick e-mail to Congressman Connolly to thank him for supporting credit unions – http://gerryconnolly.com/contact_info.
Also, for those of you not represented by Congressman Connolly, we encourage you to contact your own lawmaker and urge them to support the member business lending cap increase. Visit http://capwiz.com/cuna/issues/alert/?alertid=60924796.
Learn more about the Connolly event/campaign here: http://www.washingtonpost.com/blogs/virginia-politics/post/rep-connolly-kicks-off-reelection-bid-with-st-pats-eve-party/2012/03/16/gIQAOUmCHS_blog.html#pagebreak