Policy Documents

Research & Commentary: Lifting the Cap on Member Business Lending

February 25, 2013

Representatives Ed Royce (R-CA) and Carolyn McCarthy (D-NY) have introduced the Credit Union Small Business Jobs Creation Act (HR 688), which would lift the member business lending cap on credit unions from 12.25 percent to 27.5 percent of total assets.

Small and medium-sized businesses are a key engine of the U.S. economy and the primary creator of new jobs. The lack of credit available to these small businesses in recent years has slowed the recovery of the economy, and new sources of lending outside the traditional banking sector could get credit flowing to where it is most needed and best utilized. One of these alternatives is member business lending by the nation’s credit unions.

The proposal in the House would expand the ability of credit unions to provide business loans as long as they meet certain eligibility requirements. These requirements include capitalization standards, five years of experience with member business loans and a strong existing business selling the loans, and strong underwriting and leadership management.

Opponents of the bill contend it would not necessarily expand lending capacity, would hurt banking interests, might destabilize credit unions, and violates the historical purpose of credit unions. Supporters of the proposal say raising the cap on credit union member business loans would open up credit for small businesses where traditional banks have been unwilling to invest. With banks already controlling about 95 percent of the depository institution services market, they are unlikely to sustain a mortal wound if a burdensome regulation on their competition is lifted.

According to the Small Business Administration, credit unions often lend to types of businesses that can’t get bank loans. The Credit Union National Association estimates the proposed loosening of restrictions on member business lending could spur creation of more than 140,000 new jobs and open up $13 billion to small businesses in the first year.

The following articles examine credit union member business lending, the proposed changes to the lending cap, and the proposal’s possible effect on the nation’s credit markets.

Legislation Would Raise Business Lending Caps for Credit Unions
Vicki Needham of The Hill discusses the introduction of legislation that would more than double the business lending cap for credit unions, sponsored by Reps. Ed Royce (R-CA) and Carolyn McCarthy (D-NY). For eligible credit unions, the bill would raise the member business lending cap to 27.5 percent, up from 12.25 percent of assets. 

Small Business Credit Still a Problem: Expanding Credit Union Member Authority a Much-Needed First Step
Investment policy expert Eli Lehrer reviews the challenges smaller enterprises face in obtaining credit and outlines potential benefits that one proposal—a modest change in the regulations governing credit unions—could have in providing much-needed access to small business credit. He describes how this proposed legislation would free up $13 billion in capital and create 140,000 jobs at no cost to taxpayers, and then reviews its other likely consequences. 

Another Fight Brews over Member Business Lending
The Credit Union Times discusses recent developments in legislation that would lift caps on credit union member business lending. 

Can Credit Union Member Business Loans Meet the Need for More Credit to Small Businesses?
Katherine E. Howell-Best of the North Carolina Banking Institute examines whether credit unions can effectively serve the small business market through their member business lending products. 

Cheney to Congress: CUs Will Help Those Ignored by Banks
Credit Union National Association President/CEO Bill Cheney argues in a letter to Congress that increasing the lending cap for credit unions would allow them to provide small businesses access to much-needed credit without putting taxpayer funds at risk. 

Lawmakers Push to Allow Credit Unions to Give More Business Loans
Writing in The Heartlander digital magazine, Jennifer G. Hickey reports on the push for credit unions to expand member business lending and the opposition from the banking industry. 

A Brief History of Member Business Lending and Credit Unions
Elliott Kashner of Credit Union Strategy & Performance examines the history of small business lending and credit unions and discusses possibilities for policy change. 

Credit Unions Make Friends—But Not with Bankers
The St. Louis Federal Reserve examines the legislative and legal history of the battle between credit unions and the banking industry over how and when credit unions are allowed to lend to consumers. 

Taxicab Medallions and Heirloom Tomatoes to the Rescue: How Expanding Credit Union Lending can Help Small Businesses survive the Credit Crunch
Investment policy expert Eli Lehrer examines a way the nation could increase the supply of small business credit: relaxing restrictions on credit union business lending.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the FIRE Policy News Web site at http://news.heartland.org/insurance-and-finance, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.