NAFCU: Outdated artificial member business lending cap on credit unions hurts small business

WASHINGTON, DC (December 5, 2013) —  Lafayette Federal Credit Union President and CEO John Farmakides will testify today on behalf of the National Association of Federal Credit Unions (NAFCU) in front of a House Small Business subcommittee on the condition of the small-business lending environment post-financial crisis, and how the increased need to get lines of credit that members lost from other lenders has affected his credit union in particular.

Farmakides, whose credit union is based in Kensington, Md., is testifying before the Subcommittee on Economic Growth,Tax and Capital Access, and will describe how lawmakers can help credit unions by improving what he calls “an outdated artificial member business lending cap that ultimately hurts small businesses.”

“While other lenders pulled back on business lending during the economic downturn, credit unions continued to lend to their small-business members. Furthermore, as those small-business members lost lines of credit from other lenders, they turned to credit unions to help meet their needs, leading to an increased demand for credit union business loans. A recent survey of NAFCU members found that the percentage of credit unions with member business lending programs has been rising steadily since the financial crisis, from 25.9 percent in 2008 to 31.6 percent in 2013,” according to Farmakides’ testimony.

Farmakides also describes the increased demand from small-business members since the financial crisis for lines of credit to replace those lost from other lenders. Yet, the lending cap has hurt his credit union’s ability to provide valuable member service and to offer the same level of products and services it offered prior to the economic downturn.

“While our credit union proudly meets our local community’s lending needs, the arbitrary member business lending cap is now having a direct negative impact on how well we can serve our members. Many small businesses come to us looking for large lines of credit to help them meet cyclical challenges. However, any line of credit above $50,000 counts toward our member business lending cap, even if the funds are not extended. This fact hampers our ability to meet the needs of many of our small-business members.”

Farmakides says the very existence of an MBL cap deters credit unions from starting an MBL portfolio because they know that at some point, they will have to turn members away. He emphasized the credit union industry’s history of supporting small businesses, including data from the Small Business Administration’s (SBA) Office of Advocacy showing that credit union business lending increased both before and during the financial crisis. It shows banks decreased their lending during the same period.

Farmakides recommends lawmakers do the following:

  • enact H.R. 688, the “Credit Union Small Business Jobs Creation Act,”  introduced by Reps. Ed Royce, R-Calif., and Carolyn McCarthy, D-N.Y., which would raise the arbitrary member business lending cap from 12.25 percent of assets to 27.5 percent;
  • adopt the measures in NAFCU’s five-point plan for regulatory relief, including establishing a risk-based capital system and allowing credit unions to seek access to supplemental capital;
  • ease restrictions on credit union participation in SBA loan programs; and
  • permanently exempt SBA loans from counting against a credit union’s MBL cap in full.

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The National Association of Federal Credit Unions is the only national organization that focuses exclusively on federal issues affecting credit unions, representing its members before the federal government and the public. 

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