The Secret Is Out: Bankers Don’t Really Care About MBL Reform

Banks and credit unions are locked in an all-out war over legislation to raise the Member Business Lending cap. The war in many ways is one-sided. The credit union system wants to help small businesses get access to capital and thus fuel economic growth. The banks don’t seem to care about small businesses or helping the economy move forward. They only care about one thing—not letting credit unions get a legislative victory. And let’s be realistic, this wouldn’t be a huge legislative victory. We are not talking about removing the MBL cap, we’re talking about increasing it, and that increase comes with many restrictions, many controlled by NCUA.

The banker associations are spending record resources to combat this bill. But why? It’s time for banks to question their associations on this effort. While the bank associations are pulling out all the stops to crush MBL legislation, major issues like the reform of government sponsored enterprises Fannie and Freddie are on the table. While they are worried about MBL legislation creating more than 140,000 new jobs and driving $13 billion in new capital to small businesses, we learned last week that 351 community banks that owe some $15 billion in TARP loans are facing a “significant challenge” in generating funds to repay these loans. Wouldn’t the banker associations be more responsible if they were focusing on this major issue?

Are they paying attention to the coming shift in the payments world? Do they recognize the threat from social media players like Facebook? If bank associations were truly representing their members’ concerns, this is where they would be focused.

Instead, it’s a black hole of resources battling credit unions. The reality is that your typical banker doesn’t really care if the MBL cap is increased. The average credit union MBL is only $219,000, not exactly the sweet spot for most banks. So why do the banker associations continue to drive such vehement opposition?

It’s very simple and it’s something we have started talking to our New Jersey lawmakers about—trade association “validation.” The bank associations have propped up big, bad credit unions—with our 6% marketshare—as the evil nemesis of bankers. It’s laughable when you look at the numbers.

The truth is most banks don’t care about credit unions having an expanded MBL cap! In fact, we often see banks and CUs refer each other business the other can’t handle or doesn’t fit their business plan.

Banker apathy on MBLs was validated by a recent American Banker poll. On the question of whether or not credit unions should have an MBL cap increase, 60% of poll respondents said yes CUs should have an expanded cap because competition is healthy. Ten-percent said yes as long as CUs have sufficient capital, which is built into the proposed bill. Only 31% said no.

Banker associations should listen to this poll and concentrate on the big fish, not us. They need to worry about GSE reform, TARP issues, and the coming shift in technology companies getting into the financial business. Bankers are being duped by their associations into thinking credit union business lending growth is going to hurt them. I think it would actually help. What banker doesn’t want job growth? What banker doesn’t want to see small businesses be able to survive and thrive? It helps everyone.

Unfortunately, this is the battle we have to fight. I continue to urge you to contact your Senators to push for MBL reform. This is not “one and done” advocacy. If you sent emails and letters two weeks ago, send another round. Find new people in the organization to participate. We must keep up the pressure so this legislation doesn’t get drowned out by poorly crafted banker messaging on credit unions moving beyond their purpose.

Paul Gentile is the president/CEO of the New Jersey Credit Union League, the state trade association for New Jersey’s credit unions. New Jersey is home to 215 credit unions serving 1.2 million credit union members and with a combined $10 billion in assets. Gentile has helped re-energize the New Jersey Credit Union League by launching new branding efforts, programs, and political action. Prior to his role with NJCUL, Gentile served as the editor and publisher of Credit Union Times, a national weekly publication covering the credit union movement. He is a well-know figure in the credit union industry and has written hundreds of stories on all aspects of the industry.  www.njcul.org