By Terrell Pierce
President/CEO, Security FCU (FL)
No Michigan credit union professional or volunteer needs to be told that these are challenging times for our state’s economy. Whether the category is employment, median income, foreclosures or a host of other economic indicators, the recent news here in the Great Lakes State has generally been discouraging.
But, if Michigan’s economic difficulties are well known, the keys to turning our fortunes around are no secret, either. Michigan needs to promote entrepreneurship, small businesses and new industries. We need to reduce our state’s historical reliance on the auto industry and major manufacturing, where foreign competition, automation and other factors have dramatically reduced employment rolls.
A vital component in making this economic transformation is to expand small business access to start-up and expansion capital. An innovative entrepreneur with a great idea — but no access to capital — is a tragedy that Michigan can neither permit nor afford.
Opposing any prudent plan to expand the state’s capital pool makes little sense. To inhibit business access to capital at this critical time in Michigan’s economic development — or at any time, for that matter — is simply bad public policy. Yet this is precisely the attitude of some banking industry lobbyists who are vehemently opposing the Credit Union Regulatory Improvement Act (CURIA), H.R. 1537.
Credit union leaders are well aware that passage of CURIA would help the nation’s credit unions better serve their millions of members. But the benefits would not be limited to credit unions. The general economy and the business community also have much to gain.
Federally chartered credit unions in Michigan and across the nation are currently constrained by an unrealistic limit on their business lending activities. No federal credit union may invest more than 12.25 percent of its total assets in business loans — regardless of how well its loan portfolio is performing or how much social and economic good additional loans might do.
This cap was included in the Credit Union Membership Access Act of 1998 (H.R. 1151), federal legislation that credit unions needed to clarify an ambiguity in the Federal Credit Union Act and allow them to serve multiple membership groups. We had no choice but to go along with this compromise in order to neutralize banker opposition and ensure the passage H.R. 1151.
This was the right decision at the time — H.R. 1151 breezed through the Senate 92-6 and passed on simple voice vote in the House — but the downside has been an unnecessary and unjustified burden on credit unions. The 12.25 percent cap does nothing to promote safety and soundness while choking off the flow of credit union capital to businesses.
CURIA would raise that cap to a far more reasonable 20 percent of assets, allowing credit unions to help more members start and expand small businesses and promote economic growth. H.R. 1537 would also exempt loans under $100,000 and those to nonprofit religious organizations from a credit union’s business lending calculation.
Raising the cap to 20 percent would free up hundreds of millions of dollars for commercial lending, just in Michigan alone. Of course, some banking industry lobbyists have contended that this, and other CURIA provisions, would amount to unfair competition, since credit unions operate as not-for-profit financial cooperatives exempt from corporate income taxes.
This is a curious contention. Banks utterly dominate the commercial lending market, with credit unions accounting for an infinitesimal share (less than 0.5 percent) of the nation’s commercial loans. The passage of CURIA will scarcely register a blip on the banking industry’s radar — but it could make all the difference in the world to a cash-starved entrepreneur or small business owner who lacks the capital to expand and hire.
CURIA has numerous other provisions that would allow credit unions to provide their members with better and more affordable services. Significantly, the bill would also expand the ability of credit unions to serve those communities where the need for affordable financial services is greatest — “underserved” areas where income levels are lower and many financial institutions are typically reluctant to locate.
Speaking at the MCUL Annual Convention and Exposition last May, NCUA Board Member Rodney Hood bluntly described the existing arbitrary cap on business lending as “ridiculous.” The comment drew appreciative applause from his credit union audience, and rightly so. Passage of CURIA will mean a better and more prosperous future for everyone in Michigan — and that is the message we need to continue to deliver loud and clear to our members of Congress.