CUs need Hill action to help ease credit crunch

WASHINGTON (5/1/08)—A Credit Union National Association (CUNA) witness testifying Wednesday on the effect of the credit crunch on small business access to capital said credit unions stand ready to support small businesses with more capital, but Congress needs to remove arbitrary legislative barriers.

CUNA

Carl Sorgatz, president of Hawthorne CU, Naperville, Ill. and testifying on behalf of CUNA, urges lawmakers to remove barriers preventing credit unions from being of even greater help during the country's current credit crunch. (CUNA photo)

witness Carl Sorgatz,
testifying before a House Small Business subcommittee, said that despite the apparent "credit crunch" with respect to small business and other lending, the chief obstacle for credit union business lending is not the availability of capital.

"Credit unions are in general very well capitalized. Rather, the chief obstacle for credit unions is the arbitrary statutory lending limits imposed by Congress in 1998 and the burdens associated with many of the SBA (Small Business Administration) lending programs," he told the subcommittee on finance and tax. Sorgatz is president of Hawthorne CU, Naperville, Ill.

The CUNA witness acknowledged that federal lawmakers "hear a lot of rhetoric surrounding credit union member business lending." He then went on to provide accurate information regarding credit union member business lending (MBL) activity.

He noted:

• Credit union MBLs are relatively small loans; in 2007, the average credit union MBL originated was $180,710;

• Nationally, credit union business lending represents less than one percent of the depository institution business lending market; credit unions have about $28 billion in outstanding business loans, compared to $3.1 trillion for banking institutions; and

• In general, credit unions do not finance skyscrapers or sports arenas; they make loans to credit union members who own and operate small businesses.

Under current law, credit unions are restricted from member business lending in excess of 12.25% of their total assets.

"This arbitrary cap has no basis in either actual credit union business lending or safety and soundness considerations," said Sorgatz. He noted a subsequent report by the U.S. Treasury Department, which found that business lending credit unions were more regulated than other financial institutions, and that delinquencies and charge-offs for credit union business loans were "much lower" than that for either banks or thrift institutions.

"This cap is overly restrictive and undermines public policy to support America's small businesses. It severely restricts the ability of credit unions to provide loans to small businesses at a time when small businesses are finding it increasingly difficult to obtain credit from other types of financial institutions, especially larger banks," he added.

Sorgatz urged the panel members to support legislation with provisions that would restore more MBL authority for credit unions, including:

• The Credit Union Regulatory Improvements Act (H.R. 1537), which would increase the current MBL limit from 12.25% to 20% of total assets, and permit the National Credit Union Administration to increase the threshold for defining a MBL from $50,000 to $100,000;

• The Credit Union Regulatory Relief Act (H.R. 5519), which contains several provisions that would permit credit unions to make more small business loans available, although it does not address the overall cap; and

• The Credit Union Small Business Lending Act (H.R. 1849), which recognizes the need to enhance credit union business lending through SBA programs.

The CUNA witness also reiterated CUNA's strong support of SBA's 7(a) loan program, which provides America's 26 million small business owners with the capital and technical assistance needed to start and expand their businesses.

Sorgatz reminded the House subpanel that several important factors, including the statutory MBL cap and SBA policies that, until 2003, limited credit union eligibility to participate in the 7(a) program, have discouraged many credit unions from participating.

Other witnesses at the Wednesday hearing included representatives from the National Association of Home Builders, the Independent Community Bankers Association, and the U.S. Women's Chamber of Commerce.