Wisconsin Bankers Association: Credit unions ill-equipped for more commercial lending

For more information, contact:

Eric Skrum, Wisconsin Bankers Association

608/441-1216, eskrum@wisbank.com

If CUs want to help speed a recovery then pay taxes, bank group says

(MADISON) Large, profit-driven credit unions already do a poor job of serving the low-to-moderate income populations they were given an expensive corporate tax subsidy to serve. So why should Congress allow them to stray even further from that mission?

That is the response from the Wisconsin Bankers Association (WBA) to a recent news release issued by the Wisconsin Credit Union League on pending federal legislation to expand the credit union industry’s commercial lending authority.

Multiple studies, including ones from the Government Accountability Office (GAO) – the research arm of Congress – and the National Community Reinvestment Coalition (NCRC), have documented that taxpaying banks do a far better job of reaching underserved consumers than credit unions, despite the credit union subsidy that costs Wisconsin taxpayers at least $40 million and at least $2 billion nationally.

But now the credit union lobby is pushing Congress to expand its already broad commercial lending authority. WBA opposes the federal legislation for many reasons, including that the CU industry is ill-equipped to handle increased commercial lending.

In 2003, GAO warned that because credit union commercial loans “constitute only a small percentage of credit union lending, most NCUA [National Credit Union Administration] examiners will not have significant experience looking at his type of lending activity.” GAO went on to say that it was skeptical that NCUA, the CU industry’s federal regulator and deposit insurer, was up to “the challenge to ensuring that it is adequately prepared to monitor” the expansion of the CU commercial lending.

An important point the CU lobby fails to mention in this debate is that Wisconsin’s 270-plus state chartered credit unions already have the right to petition their state regulator, the Office of Credit Unions (OCU), to exceed the current 12.25 percent cap (DFI-CU 72). The federal legislation would circumvent an important regulatory safeguard used to determine whether a credit union has the expertise and financial strength to manage more commercial loans, according to Kurt R. Bauer, WBA president/CEO.

“The recession was caused by financial firms engaging in activities that neither they nor their regulators fully understood,” Bauer explained. “Given that experience, it is beyond risky for Congress to ignore the legitimate regulatory safety and soundness concerns expressed by GAO and others that inherently go with expanding the credit union industry’s commercial lending authority, especially in an unstable economy.”

Bauer also stated that it doesn’t make sense for federal lawmakers to reward the very largest and most profit-driven credit unions with more commercial lending authority when there is overwhelming evidence from independent and unbiased sources that CUs are not reaching out to underserved consumers.

In fact, Congress clarified in the Credit Union Membership Access Act of 1998 (CUMAA) that the existing restrictions “…are intended to ensure that credit unions continue to fulfill their specified mission of meeting the credit and savings needs of consumers, especially persons of modest means, through the emphasis on consumer rather than business loans.”

The Congressional record also states that the current cap “…will prevent significant amounts of credit union resources from being allocated to large commercial loans that may present additional safety and soundness concerns for credit unions and that could potentially increase the risk of taxpayer losses through the National Credit Union Share Insurance Fund.” (Senate Report 105-193, May 21, 1998, Pages 9-10)

Another point the CU lobby doesn’t mention is that out of the more than 7,600 credit unions nationwide, only 37 – or less than a 1/2 of one percent – are at or near their Congressionally mandated cap.

That fact proves the CU lobby is carrying water for only the largest, most aggressive and non-traditional CUs that use their tax and regulatory advantages to poach business from taxpaying financial institutions, Bauer said. He urged lawmakers to remember that when tax-exempt credit unions takes business away from taxpaying banks, state and federal corporate tax collections suffer at a time when government coffers are bare.

“If the largest CUs truly want to help speed an economic recovery, they can start by paying their fair share of the tax burden, just like other businesses in Wisconsin and across the nation,” Bauer said.