WASHINGTON — Credit unions appear to be facing an uphill battle in their ongoing effort to pass legislation that would double their cap on business lending.
Though their efforts were supported Wednesday by Deborah Matz, the chairman of the National Credit Union Administration, lawmakers from both political parties said they were skeptical there is enough demand to justify an increase in the cap or why credit unions are better positioned than banks to make small-business loans.
"If we want to increase the cap, what are the justifiable means to do so, where is the demand for that?" Rep. David Scott, D-Ga., asked at a House Financial Services subcommittee hearing on the subject. "It just seems to me that that would be the most significant empirical evidence to show."
The bill would double the 12.5% business lending cap to 27.5% of total assets. It would establish a tiered approval process, allowing credit unions to boost their business lending by no more than 30% a year, and only if they meet certain criteria, including being well capitalized.
Matz said the NCUA doesn't track the number of loans that credit unions make to borrowers who were unable to secure a loan with a bank. But she said that credit unions have increased business loans by 44% since 2006, while much of the banking industry has reduced lending, citing weak demand.
Lawmakers, however, wondered if raising the cap would make any difference.
"If community banks are unwilling or unable to make those loans at that time, why should we believe that credit unions can make up the difference?" asked Rep. Ruben Hinojosa, D-Texas.
Several lawmakers pointed out that only a small number of credit unions even come close to meeting the lending cap. But Matz said the bill would encourage more credit unions to invest in the employees and training they need to make business loans.
"The cap has been a limiting figure for all credit unions that make business loans," she said. "In some cases if a staff person leaves they won't fill the position or they'll just deal with repeat customers, because they're mindful of the cap. They don't want to get close to the cap and then have to turn away business."
Matz said raising the cap would boost small-business lending, create jobs, help credit unions diversify their portfolios and increase capital.
She also disputed the idea that credit unions don't have the expertise to lend to small businesses. Matz said credit unions that make business loans have maintained lower delinquency rates on those loans than banks.
In addition, they must meet certain criteria and seek approval from their regulator in order to make business loans, she said.
"Allowing credit unions to make more business loans could promote their safety and soundness," she said. "Most credit union portfolios are concentrated on mortgage loans and auto loans."
But Sal Marranca, the chairman of the Independent Community Bankers of America and the president and CEO of the Cattaragus County Bank in Little Valley, N.Y., said demand for lending is very weak. Only a small percentage of credit unions are at or near the lending cap, and the majority of them make no business loans at all, he said.
The credit unions that are near the cap are making the largest and most complex business loans, and threaten business for banks, Marranca said.
He also complained that, after decades of "mission creep," the credit unions' tax exemption is no longer fair and gives them an unfair advantage that distorts the market.
"I've lost business lending opportunities with established customers to credit unions who underpriced my competitive rates," Marranca said.
