Farmakides tells Congress MBL cap hinders needed small-biz lending

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Lafayette FCU President and CEO John Farmakides testified for NAFCU during Thursday's hearing. (Dietsch photos)

Dec. 6, 2013 - John Farmakides, president and CEO of Lafayette FCU in Kensington, Md., testified Thursday on behalf of NAFCU at a House Small Business subcommittee hearing, focusing on how the member business lending cap has made it more difficult for his and other credit unions to offer small-business loans, despite the demand.

Farmakides spoke of the difficulty of credit unions being forced to “pick and choose” candidates that are all creditworthy because of the limitations of the MBL cap. Asked by subcommittee Chairman Tim Rice, R-S.C., what single measure Farmakides would suggest to improve small business lending, the credit union CEO chose raising or lifting the cap entirely. He urged an adjustment of the MBL cap from $50,000 to $250,000 at the least.

Both Rice and Ranking Member Judy Chu, D-Calif., began their remarks by discussing the importance of capital availability, with Chu noting the falling number of businesses receiving Small Business Administration loans. Rice in particular questioned witnesses about how regulations regarding the MBL cap and qualified mortgages had a more negative affect on moderate- to low-income potential borrowers than wealthy borrowers.

Farmakides, in his testimony, particularly urged lawmakers to support H.R. 688, the “Credit Union Small Business Jobs Creation Act,” introduced by Reps. Ed Royce, R-Calif., and Carolyn McCarthy, D-N.Y., to raise the current MBL limit for qualified credit unions from 12.25 percent of total assets to 27.5 percent.

Shown, Farmakides speaks with Rep. Judy Chu, D-Calif., (left) about small-business lending issues after Thursday's hearing.

“Many small businesses come to us looking for large lines of credit to help them meet cyclical challenges,” Farmakides testified. “However, any line of credit above $50,000 counts toward our member business lending cap, even if the funds are not extended. This fact hampers our ability to meet the needs of many of our small-business members.”

Farmakides said the very existence of an MBL cap deters credit unions from starting an MBL portfolio because they know that at some point, they will have to turn members away. He emphasized the credit union industry’s history of supporting small businesses, including data from the Small Business Administration’s Office of Advocacy showing that credit union business lending increased both before and during the financial crisis. It shows banks decreased their lending during the same period.

The Subcommittee on Economic Growth, Tax and Capital Access hearing was titled “Where Are We Now? Examining the Post-Recession Small Business Lending Environment.” Farmakides testified alongside witnesses from the Federal Reserve Bank of Cleveland, Dun and Bradstreet Credibility Corp. of Malibu, Calif., the Lending Club of San Francisco and the S.C. Bankers Association of Columbia, S.C.

NAFCU has a strong history of supporting credit union member business lending. It has testified before the Senate Banking and House Financial Services committees on the need to expand credit unions’ MBL authority to support member small-businesses’ needs for growth and hiring.

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Farmakides' testimony