So far, there’s been no recent change as to how much credit unions can lend to their customers, but these financial institutions are attempting to get their federal charter and the law changed to lend more.
However, community bankers are fighting those proposed changes and cited a recent study that said doing so could be financially risky and do little to improve access to money. The study, called “An Analysis of the Impact of Expanding the Ability of Credit Unions to Increase Commercial Loans,” was published by a Washington, D.C. firm.
The Independent Community Bankers of America (ICBA) said they support the findings. “We have to ask, ‘Who are credit unions?’ ‘Why do they exist?’ and ‘Who are they today?’” said Jason Kratovil, vice-president, congressional relations, ICBA.
He said the credit-union lending cap was put in place in 1998, but also said that in the same legislation dramatically expanded a credit unions’ ability to reach new people to join their credit union.
“Historically, they were meant to serve a very specifically designed set of people,” he said, adding that credit union members used to typically be people who could not get access to traditional banking.
Kratovil said in 1998, the credit union’s received expanded powers, but the legislation also put a cap in place regarding the dollar amounts they could lend.
He said if credit unions want to lend more money, the answer is simple. “They could then become a full-service mutual bank,” he said. “And a number have done that.”
Kratovil said any changes must come before Congress because of credit unions’ federal charter. He said it’s tough to predict what will happen.
“When you look at this year, I think they thought they had the stars aligning for them,” he said. “They had the administration on their side, they had the majority leader of the Senate on their side . . . however, enough members saw how controversial this legislation is and all indications are that they may not get a vote.”
But those representing the credit union, see the issue differently.
“You’re not talking about building hotels or major projects, they (the credit union lending) are typically loans to small businesses to expand,” said Mike Wishnow, senior vice-president, Pennsylvania Credit Union Association.
Wishnow said Pennsylvania has more credit unions than any other state. There are more than 450 across Pennsylvania.
“Credit unions have been giving those loans since they were founded,” he said. Wishnow said the cap put in place in the 1998 legislation was 12.2 percent of assets. The legislation currently debated would more than double that percentage.
He said in the recent crisis in the financial sector, many banks tightened their lending requirements. Credit unions have not. “When the pendulum swung in that way, we kept lending money,” he said.
Wishnow said this is not about ‘moving in’ on anyone’s turf. He said doubling the amount of money credit unions are allowed to loan is the key issue.
“Many of the loans credit unions are giving are to people who went to banks first,” he said. “And frankly, they haven’t been successful.”
He said in Pennsylvania, small-business lending has increased 20 percent and credit unions are serving a need that banks can’t. “Having someone else in the business to lend money is good for the economy, it’s good for small business and it’s good for everyone,” he said.
“As long as they are looking to expand their powers, we’re going to be right there telling people why this cap was put in place to begin with,” said Kratovil.