Senate Bill to Raise Credit Union Small Biz Lending Cap Stirs Debate

On March 9th of this year, Senator Mark Udall of Colorado introduced Senate Bill 509, the Small Business Enhancement Lending Act, a bill that would raise the permissible amount of Member Business Loans from the current cap of 12.25% to 27.5% of a Credit Union’s assets.

In aggregate, Credit Unions ‘ Member Business Loans equaled 4.2% of assets in 2010.  While only a tiny fraction of Credit Unions are being held back by the current 12.25% limit, which was put into effect in 1998, and  some have called arbitrary, National Credit Union Association survey data shows that nearly 70% of Credit Unions do not make Member Business Loans in the first place, perhaps held back by the perception that these loans were too risky.

The proposed legislation is supported by the Obama administration, and by the Credit Union National Association, which projects that the bill’s passage could result in $13 billion of new lending to small businesses, which would in turn stimulate 140,000 new jobs, all at no cost to taxpayers.  The American Banking Association is vigorously lobbying against Udall’s bill, contending that the proposed legislation is intended to support “large, aggressive, growth-oriented credit unions who have abandoned their mission of serving people of modest means.”

Personally, I hope the Senate can move bill 509 quickly through committee, debate, and to an affirmative vote.  While it is true that only a small minority of Credit Unions are currently constrained by the 12.25%-of-assets lending limit for Member Business Loans, in addition to freeing these Credit Unions to lend more, the bill’s passage might also stimulate other more conservative Credit Unions to think about originating Member Business Loans for the first time.  To have this bill stifled by Big Banking as it attempts to protect its turf against encroachment from not-for-profit Credit Unions would be ironic, especially as this country attempts to pull out of a recession that was made worse by the reckless and unregulated actions of some of this nation’s largest banks.