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House bill would temporarily lift credit union commercial lending cap

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A forthcoming House bill would eliminate credit unions’ member business lending cap for three years on all loans related to helping small businesses weather the coronavirus crisis.

The legislation, announced Wednesday in a letter from Reps. Brad Sherman, D-Calif., Suzanne Bonamici, D-Ore., Don Young, R-Alaska, and Brian Fitzpatrick, R-Pa., would exempt all credit union disaster-relief loans to small businesses from the MBL cap.

"Given the urgent financial needs of so many small businesses because of the COVID-19 crisis, now is the time to provide credit unions with additional flexibility to serve their business members," the representatives wrote.

The letter, which called the legislation the Access to Credit for Small Businesses Impacted by the COVID–19 Crisis Act of 2020, said others had until Thursday to sign on to be an original co-sponsor of the bill.

By law, credit unions’ member business lending portfolios cannot exceed 12.25% of total assets. The proposed legislation would include any credit union commercial loans used to help businesses recover from the pandemic for a three-year period beginning March 13 of this year, according to the National Association of Federally-Insured Credit Unions. The National Credit Union Administration would also have to issue regulations ensuring safety and soundness were not adversely affected by any of those loans.

As the credit union industry has grown in the years since the Great Recession, trade groups have repeatedly pushed that the MBL cap be raised or removed entirely. Those efforts have been unsuccessful, however, in part because of strong pushback from bank groups. The cap was originally put in place as a concession to bankers after passage of the Credit Union Membership Access Act in the late 1990s.

Not surprisingly, credit union groups cheered the news.

“This legislation will go a long way toward ensuring more loans and capital reach those in need, and NAFCU stands to advocate for its passage during these uncertain economic times,” Dan Berger, NAFCU's president and chief executive, said in a statement.

"This legislation would ensure that all available business credit is deployable during and after this crisis, so that small businesses can get back to business and Main Street communities can recover quickly from this unprecedented crisis,” said Jim Nussle, president and CEO of the Credit Union National Association.

The American Bankers Association said it supported efforts to help financial institutions work with those affected by COVID-19 but criticized the legislation.

"[T]his proposal has nothing to do with the current crisis," a spokesman said. "Government guaranteed loans, such as crisis-specific programs like the SBA Paycheck Protection Program, do not count against the member business loan cap. We can only assume that this is an attempt by the credit union industry to quietly ease longstanding commercial lending limits using the current crisis as a cover.”

However, it's unlikely that lawmakers will act immediately on any proposed legislation. Congress isn’t expected back in Washington until at least early May.

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