NTU Calls Congress to Enact Reforms

In a July 16 letter to Chairman Crapo (R - ID), Ranking Member Brown (D - OH), Chairwoman Waters (D - CA), and Ranking Member McHenry (R - NC), the National Taxpayers Union (NTU), the nation's oldest taxpayer advocacy organization, called on Congress to enact serious reforms before raising the member business loan (MBL) cap for credit unions to address the economic crisis stemming from COVID-19.

NTU wrote that "Congress has a responsibility to demand enhanced transparency from the credit union industry, examine potential abuses that run counter to an institution’s tax-exempt purpose, and strengthen membership rules."

Specifically, the NTU is urging the Congress enact the following reforms:

• to require federal credit unions to file Form 990s;
• to subject federal credit unions to Unrelated Business Income Tax;
• to ensure tax parity with other financial institutions; and
• to address field of membership concerns.

NTU believes that these reforms would strike "a reasonable balance between increasing credit union [business] lending capacity and accountability, transparency and fairness."

NTU stated that it would oppose any legislation to increase the MBL cap, if these reforms are not addressed.

Read the letter.

NCUA/EXIM Bank Launch 3-Year Partnership

The National Credit Union Administration announced on June 9 a three-year partnership with the Export-Import Bank (EXIM).

The NCUA and EXIM signed a memorandum of understanding to undertake a series of initiatives that will help credit unions better understand and make use of EXIM guaranteed loans and resources.

EXIM guaranteed loans would be exempt from the member business loan cap of 12.25 percent of assets.

Read the press release.

Bills Exempt Business Loans Made During Pandemic Emergency from MBL Cap

Legislation has been introduced in the House of Representatives and the Senate that will exempt business loans made during the COVID-19 pandemic from the aggregate member business loan (MBL) cap.

Representative Brad Sherman (D - CA) introduced on May 8 legislation (HR 6789) to exempt business loans originated by insured credit unions during the COVID-19 pandemic from the aggregate member business loan (MBL) cap until one year after the end of the COVID-19 emergency declaration.

The aggregate MBL cap for credit unions is 12.25 percent of assets.

The COVID-19 emergency declaration occurred on March 13, 2020.

The bill also extends temporary provisions dealing with the Central Liquidity Facility in the CARES Act, which were scheduled to expire at the end of 2020. The CARES Act expanded access to and increased the borrowing authority for the Central Liquidity Facility.

Co-sponsors of the bill include Reps. Don Young (R-AK), Brian Fitzpatrick (R-PA), Maxine Waters (D-CA), Suzanne Bonamici (D-OR), Vicente Gonzalez (D-TX), Eleanor Holmes Norton (D-DC), Joe Neguse (D-CO), J. Luis Correa (D-CA), Alan Lowenthal (D-CA), Jeff Van Drew (R-NJ) and David Trone (D-MD).

Senator Ron Wyden (D-OR) announced his intention to introduce a companion bill that would exempt the extension of credit to aid in the recovery of the COVID-19 emergency from the definition of a member business loan and thereby the MBL cap for one year. The bill states that the extension of credit must occur before the end of the one-year period beginning on March 13, 2020.

Bill Would Exclude Business Loans from MBL Cap for 3 Years

Representative Brad Sherman (D-CA) on April 17 introduced a bill (H.R. 6550) that will provide an exception from the aggregate member business loan (MBL) cap for loans made to aid in the recovery from the COVID-19 emergency.

The bill will exclude any member business loan from the aggregate MBL cap that is originated during a three-year period beginning on March 13, 2020.

The only caveat in the bill is that the extension of credit does not seriously threaten the safety and soundness of an insured credit union.

In aggregate, MBLs are capped at 12.25 percent of assets under current law.

However, roughly half of all credit unions are not subject to the MBL cap; because they have either a low income designation or have a history of making business loans or were chartered for the purpose of making business loans.

If this bill becomes law, I will be interested in seeing whether this program sunsets in three years.

As Milton Friedman said, "Nothing is so permanent as a temporary government program."

Read the bill's text.

State Bankers Associations: Reject CUs Call for Expended Business Lending Authority

In a letter to congressional leaders on April 22, 51 state bankers associations flagged “opportunistic and unnecessary” attempts by the credit union industry to seek charter enhancements — such as expansion of the member business lending cap — during the coronavirus pandemic.

The state bankers associations noted that government guaranteed loans, including SBA Paycheck Protection Program loans, are already exempt from the business lending cap, and that an expansion is unnecessary. The group added that at this time more than 99 percent of credit unions are not affected by the member business lending cap.

“We are proud of the joint work banks and credit unions have done together during this crisis, and both industries appreciate the important role we all play to keep liquidity flowing to communities,” the groups said. “However, efforts to increase credit union powers in the name of a crisis, including increases to the member business loan limit, are disappointing and distract from important policy priorities that are actually needed to support our small businesses.”

The aggregate member business loan cap for credit unions is 12.25 percent of assets. Credit unions that have a low-income designation or have had a history of making business loans or chartered for the purpose of making business loans are not subject to the cap.

Read the letter.

City of Tempe and Desert Financial CU Launch $1 Million Small Business Program

The City of Tempe (AZ) and Desert Financial Credit Union (Phoenix, AZ) on April 21 launched the $1 million Tempe Small Business Emergency Loan Program.

Tempe small businesses that employ between 5 and 50 people as of March 19, 2020 may be eligible for microloans of between $5,000 and $20,000.

Applicants must have a minimum credit score of 640. The small business needs to have operated within the city of Tempe for at least 2 years. The applicant cannot be delinquent on any state, federal, or local taxes.

The loans have a fixed interest rate at 4 percent with a repayment terms of up to 48 months. A small business owner must provide a personal guarantee and if the loan is awarded, the small business must establish a business account with Desert Financial Credit Union.

The first payment is deferred for 90 days.

The emergency loan program could serve as many as 200 Tempe small businesses.

The program will end either within 3 months or until the total guaranteed amount is lent.

Read more.

NCUA Amends Capital and Business Lending Regulations

The National Credit Union Administration (NCUA) Board unanimously approved on April 22, 2020, by notation vote, an interim final rule that amends the agency’s capital adequacy and member business loans and commercial lending regulations following the creation of the Small Business Administration’s Paycheck Protection Program (PPP).

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP to help certain businesses affected by the COVID-19 pandemic. The CARES Act requires that PPP loans receive a zero-percent risk weighting under the NCUA’s risk-based capital requirements. To reflect this statutory requirement, the interim final rule amends the NCUA’s capital adequacy regulation so that covered PPP loans receive a zero-percent risk weight in the agency’s risk-based net worth requirements.

Additionally, if a loan is pledged as collateral for a non-recourse loan provided through the Federal Reserve System’s PPP Lending Facility, the covered loan can be excluded from a credit union’s calculation of total assets for the purposes of calculating its net worth ratio. This ensures that credit unions can neutralize the regulatory capital effects of PPP loans pledged to the facility.

The interim final rule also makes a conforming change to the definition of a commercial loan in the NCUA’s member business loans and commercial lending rule. Under the rule, PPP loans are excluded from the definition of a commercial loan because the unique nature of these loans mitigates the need for enhanced commercial underwriting.

Read the interim final rule.

CUNA Uses Coronavirus to Push Legislative Priorities

Rahm Emanuel is quoted as saying "You never want a serious crisis to go to waste."

It appears that the Credit Union National Association (CUNA) has taken his quote to heart.

The credit union trade group is using the coronavirus to push their agenda to increase the ability of credit unions to make business loans and gain access to secondary capital.

In a March 19 letter to Congress, CUNA urged Congress to:

• Enact legislation exempting credit union business loans made during federally declared disasters and emergencies from the Credit Union Member Business Lending Cap;
• Enact legislation to exempt fully government-guaranteed loans made through programs at the Small Business Administration, Department of Agriculture and other agencies from the Credit Union Member Business Lending Cap; and
• Ensure that any new small business lending programs created through the Small Business Administration or other government agencies include an opportunity for credit unions to participate.

In addition, CUNA called on Congress to pass legislation giving all credit union access to secondary capital for the purpose of prompt corrective action during this national emergency. Currently, only low-income credit unions have the authority to access secondary capital. All other credit unions can only build capital through retained earnings.

Read the letter.

WI CU Regulator Removes MBL Cap for Community First CU

The Wisconsin Office of Credit Unions approved an application of Community First Credit Union (Neenah, WI) to remove the aggregate member business loan (MBL) cap, according to the Office's Credit Union Activities Report.

The credit union applied for the removal of the cap on December 9, 2019.

On January 14, 2019, the member business loan cap for Community First CU was increased to 25 percent of assets.

As of December 2019, the credit union's member business loan to asset ratio was almost 16 percent.

St. Anne's CU Provides $3 Million Commercial Loan to Restaurant Project

St. Anne's Credit Union (Fall River, MA) provided over $3 million in financing for restaurant project in New Bedford, Massachusetts.

The restaurant, Cisco New Bedford, will be the largest investment in a restaurant project in New Bedford's history.

The owner of the Cisco New Bedford is Stephen Silverstein, who owns to two other restaurants.

The $1 billion credit union will provide nearly $5 million in funding to the three restaurants owned by Silverstein in the New Bedford area.

Read more.

Wisconsin CU Regulator Removes MBL Cap for Two CUs

The Wisconsin Office of Credit Unions removed the member business loan (MBL) cap for two credit unions -- Summit Credit Union (Madison, WI) and Landmark Credit Union (New Berlin, WI).

The aggregate MBL cap for Wisconsin credit unions is 12.25 percent of assets.

According to a spokesperson for the Wisconsin Department of Financial Institutions, Summit CU was granted an exception to the aggregate MBL cap on August 19, 2016 for 18 percent of assets. The cap was removed on November 1, 2019.

Landmark CU was granted an exception to the aggregate MBL cap on April 8, 2015 for 15 percent of assets; it was subsequently raise to 18 percent of assets on March 31, 217 and removed on November 18, 2019.

NY Times Examines Taxi King Role in the Bubble and His Relationship to CU

A December 5 New York Times investigative report on the rise and fall of New York's Taxi King, Evgeny A. Freidman, examines the role of Freidman in creating the taxi medallion bubble and his relationship to Progressive Credit Union.

This article is part of an investigative series on the disruption of New York City's taxi industry.

According to the article, Freidman turned to a family friend, Robert Familant, who was the CEO of Progressive Credit Union, to help finance his plans to take on more risk to increase the industry's profit and drive up the value of taxi medallions.

The article noted that between 1997 and 2004, Progressive’s loans enabled Freidman to buy about 100 medallions to expand his taxi fleet. The article further noted that Freidman during this time became a licensed broker helping some drivers to buy medallions, usually with loans from Progressive.

In 2006, Freidman embarked on a new strategy to increase the value of his taxi medallions. New York City was auctioning 54 medallion loans for $350,000. He won all 54 medallions by bidding $477,666.50 apiece.

According to the reporter, Progressive helped finance the purchases.

Records show that Freidman used this strategy at three additional auctions.

By overpaying, this inflated the value of taxi medallions enabling Freidman to borrow even more from lenders.

This inflating of the value of taxi medallions burdened purchasers of medallions with more debt.

This story would suggest that taxi medallion lending credit unions along with other lenders probably contributed to the taxi medallion bubble with their lending practices.

Read more (subscription may be required).

Bill Would Exempt Veteran-Owned Businesses from MBL Cap

Sens. Dan Sullivan (R-Alaska) and Mazie Hirono (D-Hawaii) introduced a bill on November 12 to exempt loans made to veteran-owned businesses from a credit union’s member business lending (MBL) cap, the Veterans Member Business Loan Act (S. 2834).

The MBL cap is 12.25 percent of assets.

A similar bill was introduced earlier this year in the House of Representatives.

NCUA Charters New CU in Maine

The National Credit Union Administration granted a federal charter and share insurance coverage to Maine Harvest Federal Credit Union (Unity, ME) on August 14, 2019.

The credit union will serve the employees and roughly 13,000 members of the Maine Organic Farmers and Gardeners Association and the Maine Farmland Trust.

The credit union was chartered for the purpose to offer business loans to small farms, farmers, and other food producers. The credit union will be exempt from the member business loan cap of 12.25 percent of assets.

Read the press release.

WI CU Regulator Approved and Denied MBL Waiver Requests

The Wisconsin Office of Credit Unions approved one member business loan (MBL) waiver and denied another MBL waiver, according to the Credit Union Activities Report.

The Office of Credit Unions approved on May 31 a waiver request of Hayward Community Credit Union (Hayward, WI). The waiver was for six loans to exceed the the loan-to-value requirement. DFI-CU 72.07 sets the loan-to-value requirements for member business loans.

The state regulator also denied on May 24th a request from Verve, a Credit Union (Oshkosh, WI) for a waiver of the MBL rule. The credit union was seeking a waiver on the aggregate amount of business loans to a member or associated members.

CUNA Claims MBL Victory, Then Seeks More Holes in MBL Cap

After declaring victory with respect to the member business loan (MBL) fight, the Credit Union National Association (CUNA) appears to have reversed course.

CUNA is claiming that the enactment of S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act, and the National Credit Union Administration's amended member business loan rule have given credit unions ample opportunity to make business loans. In fact, CUNA stated that these two events gave credit unions greater business lending authority than they would have received by just raising the MBL cap from 12.25 percent of assets to 27.5 percent of assets.

Here is what CUNA wrote on January 6, 2019:

"Importantly, this legislation ... carried a major charter enhancement provision, exempting one- to four-family non-owner occupied loans from the member business lending cap. Taken together with our success on the NCUA’s MBL rule, which exempts from the cap loan participations purchased from other credit unions, we can officially declare final victory on the system’s 20-year battle to restore credit union business authority. Indeed, these two changes will provide more cap space than we had been seeking in the old Royce-Udall legislation that aimed to raise the cap to 27.5%."

Now, CUNA is supporting a bill that would exclude business loans to veterans from the aggregate MBL cap.

If that was victory, what's next on CUNA's wish list?

Bill Would Exclude Business Loans to Veterans from MBL Cap

A bill introduced in the United States House of Representatives on April 10 would exclude credit union business loans to veterans from the aggregate member business loan (MBL) cap.

The bill, Veterans Member Business Loan Act, would amend the Federal Credit Union Act to exclude extensions of credit made to veterans for business purposes from the definition of a member business loan.

The bill would cover loans to any veteran who served on active duty and was discharged or released under conditions other than dishonorable.

The statutory aggregate MBL cap is 12.25 percent of assets.

The sponsors of the bill are Representatives Vicente Gonzalez (D-TX), Don Young (R-AK), Paul Cook (R-CA), and Tulsi Gabbard (D-HI).

This bill was introduced in the last Congress.

Read the press release.

Read the bill.

Community First CU's Aggregate MBL Limit Raised to 25 Percent of Assets

The Wisconsin Office of Credit Unions granted Community First Credit Union (Neenah, WI) an exception to the aggregate member business loan (MBL) cap, according to the Credit Union Activities Report.

The credit union applied for the exception from the aggregate MBL limit on August 28, 2018 and the Wisconsin Office of Credit Unions approved the exception on January 14, 2019.

The new aggregate MBL to asset ratio for the credit union is 25 percent of assets.

This is the second exception to the aggregate MBL cap for Community First CU.

On February 24, 2014, the Wisconsin Credit Union supervisor approved an exception to the aggregate MBL limit for Community First CU to make member business loans up to 18 percent of the credit union's assets, instead of the statutory limit of 12.25 percent of assets.

At the end of the 2018, the credit union was approaching the 18 percent cap with a MBL-to-Asset ratio of 17.85 percent.

This approval comes almost two years after Community First CU was denied a request on Janaury 23, 2017 for an exception from the aggregate MBL cap.

Credit Union Odds and Ends

The following three credit union tidbits caught my attention. The first deals with the ending of subsidized government office space for a credit union. The second involves a credit union funding a construction loan for $5.36 million. The third item discusses how large executive salaries became the norm at Municipal Credit Union.

No More Taxpayer Subsidized Office Space for a Connecticut Credit Union.

The City of Groton (Connecticut) decided to not renew the lease of Groton Municipal Employees Federal Credit Union.

The credit union operated in the basement of the municipal building and paid $1 per year to the city for the space.

The credit union will move to the Groton Shopping Plaza on Plaza Court and pay market prices for the space.

Read the story.

Technology CU Funds $5.36 Million Construction Loan

Technology Credit Union provided a $5.36 million multi-family construction loan to Panoramic Interests.

The loan will fund the development of a four-story, modular-designed, 22-unit studio apartment building in Berkeley, California.

Each studio apartment will be about 365 square feet and will come completely furnished. The apartments will include nine-foot ceilings, stainless steel energy star appliances, bike storage for residents, high-efficiency lighting, low-flow plumbing fixtures and enhanced indoor air quality.

Read the press release.

Paper: Big Salaries Became the Norm at Municipal Credit Union

The Chief wrote that the large compensation packages have become the norm at scandal-plagued Municipal Credit Union (New York, NY).

Beside almost $6 million in 2016 compensation to Municipal's former CEO Kam Wong, who has been accused of embezzling funds from the credit union and banned by the National Credit Union Administration from further participation in the affairs of any credit union, the story noted 3 other employees had total 2016 compensation in excess of $600,000 and another 3 employees earned in excess of $500,000.

Click here for the credit union's 2016 Form 990.

One-to-Four Family Dwellings No Longer Count Against MBL Cap

The National Credit Union Administration Board unanimously voted to exclude any 1-to-4-unit family dwellings from the aggregate member business loan (MBL) cap of 12.25 percent.

The member business lending rule previously required those dwellings to be the primary residence of a member in order to be excluded.

The NCUA Board approved the change to make the member business lending rule conform with changes to the Federal Credit Union Act incorporated into the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, signed into law by President Donald J. Trump on May 24.

The rule becomes effective, when it is published in the Federal Register.

Read the press release.