Member Business Lending

Updated August, 2010

When Congressed passed the Credit Union Membership Access Act (CUMAA) (P.L.105-219) in 1998, they put in place restrictions on the ability of credit unions to offer member business loans. Congress codified the definition of a member business loan and limited a credit union’s member business lending to the lesser of either 1.75 times the net worth of a well-capitalized credit union or 12.25 percent of total assets.     Also pursuant to section 203 of CUMAA Congress mandated that the Treasury Department study the issue of credit unions and member business lending.

In January 2001, the Treasury Department released the study, “Credit Union Member Business Lending” and summarized the following:

Business lending is a niche market for credit unions. Overall, credit unions are not a threat to the viability and profitability of other insured depository institutions. In certain instances, however, credit unions that engage in member business lending may be an important source of competition for small banks and thrifts operation in the same geographic areas.

In the current economic crisis, many credit unions have capital to help America’s small businesses.  However, due to the outdated member business lending cap, their ability to help stimulate the economy by providing credit to small businesses is hampered. Removing or modifying the credit union member business lending cap would help provide economic stimulus without costing the taxpayer a cent.

In the Senate, Mark Udall of  Colorado recently introduced legislation, the Small Business Lending Enhancement Act (S. 2919) that would remove the Member Business Lending cap.   Congressmen Paul Kanjorski (D-PA) and Ed Royce (R-CA) have introduced similar legislation, the Promoting Lending to America’s Small Business Act (H.R. 3380), in the House.   Both bills would:

•    Increase the minimum business loan subject to the cap from $50,000 to $250,000

NAFCU continues to seek action on a member business loan cap lift, and the House Financial Services Committee is expected to hold a mark-up on such legislation in the near future. Committee Chairman Barney Frank (D-MA) confirmed these plans during a recent hearing on H.R. 5297, legislation that creates a $30 billion fund to promote small-business lending by banks and thrifts with less than $10 billion in assets.

NAFCU applauds this news, as well as indications from the Obama administration that the White House could support provisions to raise the MBL cap so long as certain safety and soundness concerns are addressed.   In late May, Treasury Secretary Timothy Geithner sent a letter to Chairman Frank outlining this support.

Most recently the House passed H.R. 5297. While the Senate has taken up its version of the small business lending bill, agreement has yet to be reached on which amendments will be brought up for a vote on the Senate floor during consideration of the bill. Senator Mark Udall, the cosponsor of similar stand alone legislation, has filed an amendment that will increase the credit union MBL cap to 27.5%. The amendment represents a carefully crafted compromise between key lawmakers and the Treasury Department, and would allow that the cap be raised for credit unions that:

• Have been near the current limit for four consecutive quarters (for example, credit unions with member business loans totaling eighty percent of the current cap);

 

• Are well capitalized;  those that fall below would have to suspend making new loans until they are well-capitalized once again and obtain NCUA’s approval;

 

• Have at least five consecutive years of experience in underwriting and servicing member business loans;  

 

• Have strong policies and experience in managing member business lending loans; and

 

• Satisfy other standards established by NCUA to maintain the safety and soundness of credit unions.

While it is more restrictive than the pending bills would be, NAFCU supports the Udall Amendment as an important first step in allowing credit unions to use as many resources as possible in helping the flow of credit reach our nation’s small businesses.