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Credit Unions Would Lend More if the Politicians Would Allow It

NEW YORK ( TheStreet) - Getting a small business loan at a credit union could become easier if legislation that lowers lending caps on the industry finally passes, maybe even this year.

The credit union industry is looking to reform the Credit Union Membership Access Act, a 15-year-old change to the Federal Credit Union Act that restricted total loans from rising above 12.25% of the institutions total assets. Multiple bills in Washington have proposed raising the cap to 27.5% -- but to no avail. The House has already introduced legislation this year to renew the bill's efforts; the Senate also plans to reintroduce a bill in the coming months, sources say.

"Here in New York State, if we have [the] member business lending cap increased, we know we could put over 10,800 New Yorkers back to work and over $1 billion lending opportunities to small businesses throughout New York State," Credit Union Association of New York president and CEO Bill Mellin said in a phone interview. "It doesn't cost the taxpayer a dime to do this, it just requires a fix on a law that's really outdated and shouldn't be there."

The credit union industry has been fighting this fight - primarily against the banking industry, as opposed to policymakers - for many years. But the industry is pushing hard this year to get their agenda passed, particularly since capital markets remained largely closed for small businesses eager to get a loan. The lack of credit union options has forced some small businesses with to seek alternative lenders for funding.

In testimony on Capitol Hill on Wednesday, Pamela Stephens, CEO of Security One Federal Credit Union, urged Congress to raise the cap that limits the amount of small-business loans total loans that credit unions are permitted to make.

"The current cap on business lending essentially prohibits a credit union like mine from entering the market," Stephens said as she testified before the House subcommittee on financial institutions and consumer credit to discuss regulatory burdens faced by credit unions.

The hearing was the second in a series the committee is holding to focus on the Dodd-Frank Act's regulatory burden and the resulting economic consequences.

"If my credit union engaged in business lending, my cap would be about $6.5 million; the cost of hiring an experienced business lending staff does not make sense for me when that operation would have to shut down soon after it became successful," according to Stephens' written testimony. "That is just what the business lending cap does - it discourages credit unions from successfully serving their members."
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