WASHINGTON-The banking lobby remains irate over NCUA's announcement that 1,000 credit unions are immediately eligible for low-income status and thus exempt from the congressionally mandated cap on member business loans (CU Journal, Aug. 13).

"NCUA has taken advantage of a natural disaster to sidestep and leapfrog Congress again, by being a cheerleader for credit unions rather than a strong regulator," said Don Childears, president of the Colorado Bankers Association, of the maneuver coupled with drought disaster relief. "NCUA used a temporary drought to make a permanent change that skirts a congressional limit by allowing unlimited tax-subsidized lending."

"It's a credit union regulator gone wild," Paul Merski, chief economist for the Independent Community Bankers of America, told American Banker, an affiliate of Credit Union Journal.

But credit unions have responded by downplaying the action's significance, saying that the NCUA is merely simplifying its process for granting an exemption to the cap on business lending, and that the 1,000 or so affected credit unions would have been eligible to receive an exemption anyway.

At issue is an NCUA decision to notify 1,003 credit unions that they're eligible to be considered low-income credit unions, which are exempt from the statutory cap on loans to member businesses. The NCUA moves comes as legislation that would lift the 12.25% of assets cap on MBLs has been stalled in Congress for the past decade and has diminished chances of passing this year.

Until recently, it's been up to credit unions to show the NCUA that they meet the criteria, an often arduous process, according to many CUs. But over the last year, the agency has been making those determinations on its own by matching information from federal credit unions with 2010 Census data, according to David Marquis, the NCUA's executive director. The decision is part of an effort to reach out to those institutions.

"The burden of having to show us that they're at the 50% level is a lot easier to do now," Marquis told American Banker.

 

Contrary to Congressional Intent

NCUA, which has qualified 1,200 credit unions for its low-income designation, has notified that additional 1,000 credit unions that their fields of membership, which may include inner cities and lowly paid enlisted military personnel, are eligible for the designation now. The designation allows credit unions to accept non-member deposits and exempts them from a variety of rules, including the cap on member business loans.

The banking industry said the NCUA move is counter to the intent of Congress.

"The NCUA's decree granting unlimited member business lending authority to more than 1,000 tax-exempt credit unions goes against the will of Congress and any rational regulatory policy authority," said the Independent Community Bankers of America. "Lawmakers set reasonable statutory caps on business lending by credit unions because these tax-subsidized institutions were established to serve people of modest means with a common bond."

"The administration and NCUA appear to be exploiting the nation's drought conditions to rationalize these designations-despite the fact that less than half of these credit unions are in states with extreme drought conditions," said the ICBA. "Highly controversial legislation to expand business-lending authority has failed to advance in Congress for a decade, but the credit union regulator has thumbed its nose at the legislative branch in favor of its own aggressive actions to dramatically expand the tax-exempt credit unions' powers."

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