ALEXANDRIA, Va.-More than 600 credit unions have taken advantage of a new regulatory policy that exempts them from caps on business lending, but new data suggests that banks' fears of increased competition for business loans are overblown.
In August, NCUA notified more than 1,000 credit unions that they were eligible to become low-income CUs, which exempts them from a statutory 12.25% cap on MBLs, along with other benefits. Banking trade groups decried the regulators' move as an end run around Congress, which has been considering legislation, fiercely opposed by the banking industry, to raise the cap (CU Journal, Aug. 20).
But new data show that out of 615 credit unions that initially accepted the NCUA's offer, only a tiny percentage are anywhere near the existing cap.
Just six of the credit unions were within 20% of it and only 14 of them were halfway there. Roughly 70% of the credit unions were doing no business lending at all.
Spokespersons for CUNA and NAFCU said that even before the regulators acted, the 1,000 CUs were eligible for the low-income designation, although some were not aware of their eligibility. About six in 10 took the regulators up on their offer, bypassing what had been a lengthy application process.
"I think this is a tempest in a teapot," Mary Dunn, deputy general counsel for CUNA, told American Banker, an affiliate of Credit Union Journal. "I think it's a manufactured issue."
For credit unions, the low-income designation does carry potential benefits beyond exempting them from the limit on business lending. It makes them eligible for certain grants and low-interest loans, expands their access to deposits from non-members, and authorizes them to obtain supplemental capital.
Banks Critical Of Plan
Banking industry officials said that the newfound ability to raise capital could accelerate the growth of the credit unions at the expense of banks. Currently, credit unions are barred from raising capital other than through retained earnings.
The American Bankers Association obtained the list of 615 credit unions from NCUA, and later provided it to American Banker. The NCUA said that its latest tally includes 623 credit unions.
The six credit unions closest to the business lending cap are Ukranian National Federal Credit Union in New York, Park View Federal Credit Union in Virginia, Utah State University Charter Credit Union, Fresno Grangers Federal Credit Union in California, Purdue Federal Credit Union in Indiana, and Mobiloil Federal Credit Union in Texas.
The data show that roughly two-thirds of the 615 credit unions have under $50 million in total assets.