Opinion

To create jobs, raise credit unions’ arbitrary lending cap

Bill Cheney President and CEO, National Credit Union
Font Size:

Should the president go big or small when he unveils his job-creation proposals in Thursday night’s speech before a joint session of Congress? You’ve heard the debate: Focus on large-scale, high-dollar initiatives that will galvanize the president’s base but surely hit a wall of opposition in the GOP-controlled House? Or promote smaller-scale initiatives that can gain bipartisan consensus and actually become law?

My question is, why should one preclude the other? If large-scale ideas are placed on the table, I would urge Congress and the president to make room for smaller-sized but still helpful measures. At a time of zero job growth, every jobs-boost helps. Here’s just one such proposal: In the financial sector, the nation’s credit unions are promoting legislation that would allow them to make more small business loans, thereby creating thousands of new jobs.

The measure, which has attracted bipartisan support in both the House (chief sponsor Ed Royce, R-CA) and Senate (chief sponsor Mark Udall, D-CO), would free up capital that credit unions are eager to lend. The association I head, Credit Union National Association, estimates giving credit unions more loan-making authority would generate $13 billion in new small business loans the first year. That in turn would generate 140,000 new jobs as small businesses put those borrowed funds to work.

This would all come at no cost to the taxpayer — highly appealing when a prime point of contention in Washington is the cost of new federal programs and their impact on the nation’s debt. The legislation would simply raise a statutory ceiling so that credit unions could devote 27.5% of their assets to small business loans rather than capping it at today’s limit of 12.25%.

Now, 140,000 new jobs obviously will not by themselves turn the economy around. Perhaps other industries have their own ideas that, like this one, have job-creating potential with the added benefit of no deficit spending. All of these ideas should be gathered and become part of the discussion for improving the country’s ailing economy.

In our industry’s case, the roadblock to raising this arbitrary lending cap has been opposition from the commercial banks. Credit unions, they say, have no business making small business loans; that’s the banks’ territory. The truth is, there is plenty of room for us all. Small business loans have been part of credit unions’ offerings since credit unions were first formed in this country a century ago, and more recently credit unions have stepped up when the banks withdrew.

Even during the depths of the financial crisis, credit unions continued lending. Since December 2007, total business loans at credit unions grew by 38% while bank business lending decreased 5% over that same period. Meanwhile the default (net charge-off) rate for credit unions last year was only half the bank rate (0.74% vs. 1.75%).

Raising the small business lending cap would allow credit unions to do even more. When I testified on this issue in June at a Senate Banking Committee hearing, I cited the case of Listerhill Credit Union in Sheffield, Alabama, which is being forced to turn away small business borrowers just because of this nonsensical lending cap. Eli Lehrer of The Heartland Institute has called the current cap “a good example of a burdensome and pointless regulation that holds back the economy.” It’s easy to see why.

One borrower who came to Listerhill Credit Union was the owner of a barge terminal trying to buy a tugboat. Had he gotten the loan, he estimated it would have doubled his business and caused him to hire three additional people. But the loan was denied just because of the cap — from a credit union with a small business loan portfolio of nearly $50 million, no delinquencies and only one charge-off!

Now, multiply this example by the roughly 350 credit unions hitting or nearing the lending cap. Then add those that never even started a program out of concern for the 12% cap. It all adds up to about 140,000 good jobs that are going by the wayside. But it doesn’t have to be that way, if Congress and the president make this straightforward, common-sense change in the law.

Small though it may be in the grand scheme, this is one good and politically viable solution. Undoubtedly there are others. Helpful measures such as these should not get lost in the larger jobs debate to come.

Bill Cheney is the president and CEO of the Credit Union National Association.

Tags : jobs
Bill Cheney