Wednesday, March 23, 2011

Where Does the 350 Come From?

The Credit Union National Association (CUNA) has been saying that "there are nearly 350 credit unions at or quickly approaching" the member business loan cap of 12.25 percent of assets. This is the same number being quoted by Senator Udall, who is the chief sponsor of a bill to raise the business loan cap for credit unions.

But I just don't see how the 350 number was derived.

Any analysis of credit unions at or approaching the cap needs to exclude credit unions that were exempted by the Credit Union Membership Access Act of 1998.

First, credit unions that have a history of making business loans or were chartered for the purpose of making business loans are exempted from the aggregate business loan cap. According to NCUA, approximately 90 credit unions were eligible for this exemption (see Federal Register, Vol. 64 (No. 102), May 27, 1999, p. 28726).

Second, credit unions that are either low-income or community development financial institution credit unions are exempted from the aggregate member business loan cap.

So, if these credit unions are included, then the results are being fudged.

By my estimation, once these institutions are excluded, the member business loan to asset ratio has to fall below 6 percent to ascertain the 350 credit union number. A credit union with a member business loan to asset ratio below 6 percent is not in the vicinity of its business loan cap.

According to my analysis, approximately one half of one percent of credit unions are near the member business loan cap. I define "near" as having a member business loan to asset ratio between 11.25 percent and 12.25 percent.

Therefore, the claim that 350 credit unions are being impacted by the member business loan cap seems inflated.


  1. So instead of 350 it's closer to 35? That means CUNA is stating a number 10 times larger than what is correct! If I were Udall I would be pretty upset to learn that I had been lied to. Lifting the cap doesn't help CUs that are already exempt from it so why does the trade organization put so much effort into something that helps only 35 CUs? And why do dues paying CUs put up with that?

  2. Perhaps some credit unions that are not within the parameters that the good Doctor set are not willing to entertain the process for growing a portfolio for only two to five percent of assets max. If your business had to spend resources and devote time to an effort for a very, very limited part of the portfolio, would you do it? Most good managers would say no. But if it could over time grow to 5 or 7 or even 10 percent if successful and demand from the member-owners warranted, then it would be a good use of the limited resources.

  3. I don't understand why the limit is set so artificially low. Perhaps your employers in the banks could explain how they manipulated Congress for this.

  4. Dear Anonymous:

    If you look at the Senate Report associated with the Credit Union Membership Access Act, Senator Hagel of Nebraska thought the 12.25 percent business lending cap was too high. Other Senators questioned why member business loans under $50,000 were not counted against the cap.

    During the floor debate in the Senate on HR 1151 in 1998 several senators defended the cap by saying they did not want credit unions to become the equivalent of tax-exempt banks.



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