The Wall Street Journal
By: Emily Maltby
August 11, 2011
Credit Unions Aim to Raise Lending Cap, Say Banks Aren't Doing Enough.
Credit unions have long sought permission from Congress to issue more business loans. Now, they hope the disappointing performance of the Treasury Department's small-business lending program will bolster their case.
Banks have requested less than $12 billion of the $30 billion made available by the by last year's Small Business Jobs Act, the Treasury Department has said. The government program offered low-interest funds to community banks so that they could boost small-business lending.
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Business owner Terry McDaniel said his request for a business loan to buy a tugboat was denied because the credit union was nearing its lending cap.
.Lobbying groups for the credit-union industry are now requesting a House hearing on proposed legislation that would increase to 27.5% the amount of total assets a credit union can lend to businesses. Current law curtails credit-union lending to 12.25% of total assets.
The higher ceiling could result in an additional $13 billion in small-business loans in the first year, estimates the Credit Union National Association, the credit-union industry's largest lobbying group.
The banking industry, long opposed to the raised cap, is fighting the legislation. Community banks, in particular, argue that the move would allow tax-exempt credit unions to swipe market share from them, at a time when the federal government needs more sources of revenue.
But credit unions, which are member-based organizations, point to small-business lending figures as signs that the banks aren't doing enough. "Congress last year gave the banks $30 billion to make small business loans, but the banks' response has been tepid at best," says Bill Cheney, president and chief executive of CUNA. "Credit unions don't need $30 billion in government assistance; we're just trying to raise a lending cap in the law that's arbitrary and outdated."
At banks, small-business lending has fallen to $609 billion, an 8.6% drop from a year ago, according to the most recent data from the Federal Deposit Insurance Corp.
Some banks attribute the drop to lower loan demand from business owners, while others say federal regulators are holding them back from lending as much as they'd like to.
Community banks, meanwhile, are concerned that the legislation is gaining momentum in Congress. "The pressure has been building," says Paul Merski, senior vice president of the Independent Community Bankers of America.
Nineteen senators have co-sponsored the credit-union bill since it was introduced in March. It has support from Sen. Olympia Snowe (R., Maine), the ranking member of the Senate's small-business committee, and Sen. Harry Reid (D., Nev.), who became the bill's most recent co-sponsor in June. A similar bill moving through the House has support from 60 lawmakers.
"Credit unions are supposed to serve individuals of modest means--they didn't get the tax exemption to do standard commercial lending," Mr. Merski says. "Allowing them to do so "would injure the viability of community banking because if they have a 40% tax advantage, they can cherry-pick the best small-business loans."
Some lawmakers have a sympathetic ear to that argument. "More information is needed to evaluate the effects of increasing the credit union member business lending levels...and on the competitiveness of small community banks," said Sen. John Kerry's (D., Mass.) press secretary, Whitney Smith.
Banks are also fighting on the point that a fraction of credit unions--334 out of 7,400 according to CUNA--are nearing the current cap of 12.25%.
Business owners, in the meantime, are wondering where to turn for credit. Terry McDaniel, owner of McDaniel Service LLC, operates a barge terminal on the Tennessee River in Florence, Ala. In early 2010, his request for a $175,000 business loan was denied because his lender, Listerhill Credit Union in Muscle Shoals, Ala., was too close to its cap, CUNA told senators in a hearing in June.
Mr. McDaniel needed the loan to buy a tugboat to tow barges between terminals along the river. Adding that service, he says, would boost revenue at his firm, which had seen profit shrink with the slow economy. Listerhill offered him a personal loan of $45,000, which he used to buy the hull. Over the last year he built the rest of the boat himself using personal savings.
"I don't know what's right or fair," says Mr. McDaniel, of the legislation to raise the cap. "All I know is I am a family operation and I have been rejected when I shouldn't have been rejected."
Brad Lawson also was discouraged when, in April 2010, Provo Postal Credit Union turned him down for a $100,000 loan to expand Mikarose LLC, a women's clothing design company in Orem, Utah. The credit union was too close to its lending cap to make the loan.
In the past, Mr. Lawson got the credit he needed within six weeks of applying. Mr. Lawson knew his company couldn't expand without a loan. So he approached a community bank, entered into a nine-month application process and was approved in March. "It was long and frustrating," he says of the process.
Credit union groups say that 5,200 of them don't offer business loans, in part because they cannot lend enough to make the operation profitable. A higher cap could change that.
Banks aren't buying it. "They have plenty of capacity and ability," says James Ballentine, senior vice president of government relations of the American Bankers Association. "All they need is the desire."
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