ABA Testified Against Increased Lending Cap

The American Bankers Association testified today before the Senate Subcommittee on Financial Institutions and Consumer Credit, expressing strong opposition to legislation that would more than double the business lending cap for qualifying credit unions, effectively turning them into tax-exempt banks.

ABA Chairman-Elect Albert C. Kelly, Jr., testified that the “Small Business Lending Enhancement Act of 2011 (H.R. 1418)” would permit credit unions within 80 percent of their member business lending cap to increase it to 27.5 percent of assets – more than double the current limit. Kelly is also chairman and chief executive officer of SpiritBank, headquartered in Bristow, Okla.

“This would allow qualified credit unions to significantly increase their business lending at the expense of making consumer loans,” Kelly said. “This increase in business lending would shift some business loans to tax-exempt credit unions from tax-paying banks, causing an increase to the federal deficit just when Congress is looking for ways to reduce the government debt.”

Credit unions already have sufficient lending authority to make small business loans, with business loans under $50,000 not counting against the current cap of 12.25 percent.

“These exemptions mean that credit unions already have unlimited ability to fund small business loans, without the need to seek increases in their member business lending limits,” Kelly said. “This proposed increase is only directed at larger loans and would benefit only a few large, aggressive credit unions. Just 96 credit unions out of 7,292 total are within 80 percent of their congressionally-mandated cap.”

For those credit unions seeking to expand their business lending, the option to convert to a mutual savings bank charter is readily available.

“Instead of trying to broaden tax-advantaged lending, increasing the deficit in the process, credit unions that seek to expand business lending opportunities can reach out with credit in their communities by converting to a mutual savings bank charter,” he said. “This charter provides the flexibility credit unions desire and would put these credit unions on equal footing with banks with respect to taxes and regulatory oversight.”