FOR IMMEDIATE RELEASE
June 16, 2011
ABA Media Contact: John Hall
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ABA TESTIFIES AGAINST INCREASED LENDING CAP FOR CREDIT UNIONS

WASHINGTON – The American Bankers Association testified today before the Senate Committee on Banking, Housing and Urban Affairs, expressing strong opposition to legislation that would dramatically increase the business loan cap for qualifying credit unions, effectively turning them into tax-exempt banks without necessary regulatory requirements.

During a hearing titled, “Credit Unions: Member Business Loans,” ABA Chairman Stephen P. Wilson testified that the Small Business Act of 2011 (S. 509) would more than double the current business loan cap for eligible credit unions, providing them with greater business lending authority than federal thrifts.  Wilson is also Chairman and CEO of LCNB National Bank in Lebanon, Ohio. 

“Make no mistake about it, S. 509 is nothing less than legislation that would allow a credit union to look and act just like a bank, without the obligation to pay taxes or have bank-like regulatory requirements applied to them,” Wilson said.  “Credit unions’ current tax-exempt status and lack of equivalent regulation have created huge competitive inequities in the local marketplace.”

While credit unions argue that greater business lending authority would enable them to meet the needs of small businesses seeking credit, Wilson noted that “such arguments are simply untrue.”  Under current law, credit unions can already make all the business loans they want under $50,000.

“The minority who are at or near this cap are a new breed of institution that bears little resemblance to traditional credit unions,” Wilson said.  “These ‘morphed’ credit unions, which seek out large commercial customers, are a far cry from traditional credit unions, which have remained true to their credit union mandate to serve people of small means.”

Lifting the business lending cap and allowing more large business loans also raises serious safety and soundness concerns.  As credit unions have aggressively pursued business lending options, business loan delinquencies have risen and some credit unions have failed. 

“Expanding credit union business lending only encourages larger, riskier loans, without any assurance of adequate oversight,” Wilson said.

Wilson testified that expanding the lending cap is inconsistent with the credit union mission of serving consumers, especially those of modest means. 

“New-breed credit unions have made business lending a top priority as they seek to rapidly grow the institution – making loans that any tax-paying financial institution would want to make…leveraging their tax-exemption to provide loans to large businesses that already have plenty of credit options available through tax-paying banks,” Wilson testified.  “This credit union tax expenditure is neither focused nor contained; it takes revenue from banks that compete for these same loans – revenue that would be taxed and would help offset some of the current federal budget deficit.”

Wilson concluded his testimony by suggesting a better option for credit unions that want to expand business lending – converting to a mutual bank charter.  The switch provides greater flexibility, still preserves the mutual-member focus that credit unions find desirable, and is accompanied by the effective and experienced supervision of traditional banking regulators. 

“Facilitating conversion to a mutual savings bank charter will benefit those credit unions that have outgrown their charter, and will also improve the fiscal position of the United States as these entities pay their fair share of taxes,” Wilson said.

For a copy of Wilson’s full testimony, please click here

The American Bankers Association represents banks of all sizes and charters and is the voice for the nation’s $13 trillion banking industry and its two million employees. The majority of ABA’s members are banks with less than $165 million in assets. Learn more at aba.com.
 

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