President Obama recently unveiled his new jobs program, which included numerous options to get America back to work. Unquestionably, job growth has been recognized as a critical linchpin for our economic recovery to become self-sustaining.
We applaud the president's focus on stimulating the economy and job creation. However, he omitted a very easy and taxpayer-friendly solution: lifting the arbitrary member business lending cap of 12.25% on credit unions.
Lifting the member business lending cap (MBL) is distinctive from the other proposals because it is a common-sense, no-cost-to- taxpayer solution that will help jumpstart the economy and develop jobs. Increasing the cap will help small businesses and promote job creation.
Currently, there are two bills that address lifting the MBL cap: S. 509, the "Small Business Lending Enhancement Act," introduced in the Senate by Sen. Mark Udall (D-Colo.), and H.R. 1418, introduced in the House with NAFCU's support by Rep. Ed Royce (R-Calif.). The fact that these are bipartisan measures underscores the sensibility behind them. In fact, even U.S. Treasury Secretary Timothy Geithner has expressed support for the measures expressed in S.506 and H.R. 1418. Our charge is to now actively champion lifting this arbitrary lending cap with our elected officials.
When you contact your legislators-either in their home districts or in Washington, D.C.-make sure they know that S. 509 or H.R. 1418 should be attached to any jobs bill that is proposed.
What's In The Bills
Both bills would allow federally insured credit unions to exceed the 12.25%-of-assets limit on MBLs if they satisfied certain criteria. These include having at least five years' experience in handling an MBL program, a classification of "well capitalized," an MBL portfolio that is at or above 80% of the credit union's current cap and as well as other requirements. NCUA would write implementing rules, including limits on yearly growth in MBLs.
As a matter of background, the banking industry's claims for imposing and maintaining the arbitrary cap were refuted as far back as 2001, when the Treasury Department released a study entitled "Credit Union Member Business Lending" and found that "...credit union's business lending currently has no effect on the viability and profitability of other insured depository institutions." Additionally, when examining the issue of whether modifying the arbitrary cap would help increase loans to businesses, the study found that "...relaxation of membership restrictions in the Act should serve to further increase member business lending..."
Furthermore, while the banking industry-in their shameless opposition to this bill-mistakenly claims that credit union business loans are more risky, the Treasury study concluded just the opposite and stated that "We found that member business loans are generally less risky than commercial loans made by banks and thrifts...."
At the end of the day, our critics may try to undercut us but our record of service to members and prudent business model shines with solid evidence. Based on second quarter figures, credit unions boast an increase in assets to $942 million and over 90 million members. Return on assets has also shown considerable improvement to 77 basis points, up from 74 basis points last quarter and significant increase over 51 percent at year-end 2010.
Hitting The Limit
Credit unions have continued to demonstrate their commitment to small business. Between June 2010 and June 2011, credit unions' member business lending increased 5.85% for a total of $31.2 billion. Many credit unions would like to do more to help small businesses gain access to the capital they need to grow their businesses, but they are hamstrung by this arbitrary lending cap.
In June, I testified before a Senate Banking Committee about the MBL issue, noting that my own credit union, Webster First, has been turning away requests for small business loans--at the time, we had reached the 12.25% ceiling more than a year before I testified!
Since then, a merger with Saugus FCU has permitted Webster First another $6 million of available funds to loan. However, we anticipate that we will hit our MBL limit sometime over the next 60 to 90 days if the current pace persists. I recognize there are many other credit unions with funds available that would like to make loans to small businesses but are limited by the MBL cap.
So when you meet with your policymakers, be direct. Lifting the MBL cap does not just benefit credit unions and their millions of members. It represents a positive, productive step that would go a long way to paving the way for small businesses to flourish and put many Americans back to work while not costing taxpayers one cent. Ultimately, it is a win for all of us.
Michael N. Lussier, president and CEO of Webster First FCU, Worcester, Mass., is 2010-11 NAFCU chair. He can be reached at 508-671-5051.