Irate Bankers Flood NCUA with Letters Opposing Business Lending Plan

National Credit Union Administration officials will likely reflect on 2015 as the year they were inundated by comment letters.

The agency received nearly 2,200 letters last spring tied to a revised draft of its proposed risk-based capital regulation. That total was believed to be a record — but it didn't stand for long.

The NCUA, which oversees the credit union industry's share insurance fund and serves as primary regulator for federal credit unions, reported Thursday that a proposed overhaul of its rule governing member business lending had generated a whopping 3,088 responses.

"A great majority" of the letters oppose the agency's plans to ease restrictions on business lending, a spokesman said.

It is easy to understand why bankers are so vocal in their opposition to the member business lending proposal. The NCUA lacks the power to amend a congressionally mandated cap limiting such loans, which currently stands at 12.25% of a credit union's assets. The agency, however, can implement certain measures that, as a whole, could make business lending markedly easier.

Among other things, the recent proposal includes language that would scale back the limit on loan-to-value ratios for business loans, eliminate a provision requiring borrowers to personally guarantee their loans, and increase the amount a credit union can lend to one borrower. It also eliminates a stipulation that loan officers have at least two years of business lending experience.

Credit unions are also backing legislative efforts that would increase the cap on member business lending to 27.5%.

Even without those changes, member business lending has been steadily rising. The credit union industry's member business loan portfolio totaled $54.4 billion on June 30, an 11% increase from a year earlier. Banks view the prospect of more member business lending in zero-sum terms, with each loan booked by a credit union representing one denied to banks.

"Credit unions generally lack the skills and controls necessary to safely engage in this business" Harris Simmons, chairman and chief executive of Zions Bancorp. in Salt Lake City, wrote in his Aug. 27 comment letter. "Credit unions were established to serve people of modest means who shared a common bond. … I sincerely hope NCUA will withdraw this proposal and encourage credit unions to instead focus on the mission given the industry by Congress."

The American Bankers Association and the Independent Community Bankers of America also submitted sharply worded letters blasting any expansion of member business lending and launched aggressive lobbying drives aimed at making banks' opposition clear.

"ABA has been pushing this issue hard," spokesman John Hall wrote Thursday in an email to American Banker. The association "put out multiple appeals to our members to articulate their concerns directly to NCUA."

The bad blood between banks and credit unions is hardly a new phenomenon, and credit unions and their backers have also been vocal. In an Aug. 12 comment letter, Stacey Mitchell, writing on behalf of Advocates for Independent Business, a two-year-old trade group that represents florists, booksellers, bicycle dealers and other independently owned retailers, said that more business lending was badly needed to counteract a credit shortage.

Mitchell acknowledged in an interview Friday that community banks provide the lion's share of credit for small businesses, but she said mom-and-pop retailers still face an acute shortage of small-dollar credit, especially loans for less than $100,000. "The local bookstore that wants to add inventory, and the small coffee shop that wants to open a new location," are being squeezed, she said.

The NCUA made the draft of its member business lending proposal public on June 18. The comment period for letters closed on Aug. 18. A final vote on the issue is expected sometime this fall.