Credit unions, banks face off on push to ease lending cap

Credit unions see the slow economic recovery as a golden moment for legislation to expand commercial lending limits.

Lobbyists and members of the credit union industry argue that raising the limit would stimulate the sluggish economy by boosting small business lending without costing the federal government anything.

Companion bills pending in the U.S. Senate and House of Representatives would expand the total commercial loans a credit union can make, from 12.25 percent of the credit union's total assets to 27.5 percent of total assets, under certain circumstances.

Many larger credit unions that engage in commercial lending, such as the University of Iowa Community Credit Union, are at or near the current cap that was established in the Federal Credit Union Act, according to to Jason Hupfer, vice president of governmental affairs for the Iowa Credit Union League.

Representatives of the league, including Hupfer, have been meeting with Iowa media outlets in support of the lobbying effort to raise the cap. That included a visit earlier this month with The Gazette's editorial board.

The credit union movement's umbrella organization, the Credit Union National Association, estimates raising the cap would provide the country's smaller businesses with $3 billion of low-cost credit in the first year. The association calculates that indirectly could generate 140,000 jobs nationwide and 2,500 jobs in Iowa.

But the bills also could create a battle royale between credit union lobbyists and those for the banking industry.

The Iowa Bankers Association is one of the banking groups strongly opposed to the bill, the Small Business Lending Enhancement Act of 2011 in the Senate version.

“The credit unions have been given a very valuable tax exemption from both state and federal income taxes, and their exempt purpose is to provide credit and service to individuals of modest means,” Iowa Bankers Association President John Sorenson said.

Credit unions pay no federal income tax but pay a Moneys and Credits tax of .005 (five mills) per dollar on their reserves above $40,000.

Banks pay a 5 percent franchise tax on earnings and pay federal corporate income tax, according to Sharon Presnall, senior vice president of governmental relations for the Iowa Bankers Association.

****

That's only the beginning of the argument between banks and credit unions over expanding the role of credit unions in commercial lending, however.

Sorenson said the desire for more commercial lending is an outgrowth of consolidation in the credit union industry that has resulted in a group of jumbo credit unions becoming interested in expanding beyond their traditional roles.

“There are now 133 credit unions in Iowa, but 10 credit unions control about 80 percent of credit union assets,” Sorenson said. “The 10 largest credit unions control the vast majority of assets and profits that the industry produces today.”

Sorenson said current laws allow credit unions to make unlimited numbers of business loans up to $50,000, and gives them unlimited ability to make Small Business Administration guaranteed loans.

Moreover, he added that the lack of credit isn't what's inhibiting the economic recovery. He said 92 percent of small businesses surveyed recently by the National Federation of Independent Business did not believe credit availability was a problem.

Rather, Sorenson said, businesses are not expanding because of weak demand for products and services among consumers.

Nonetheless, some credit unions do seem to have maxxed out on what they can loan.

The University of Iowa Community Credit Union is one of the 10 largest in Iowa. It turned down 33 loan applications totaling $15 million between May and August of this year due to the cap on commercial lending by credit unions, according to credit union CEO Jeff Disterhoft. Those 33 loan applications, he noted, included new medical, residential, dental and campground projects, along with refinancings.

Disterhoft also attended The Gazette's editorial board meeting on behalf of the Iowa Credit Union League.

Collins Community Credit Union in Cedar Rapids was at the 12.25 percent commercial lending cap as of March 31, according to information supplied by the credit union league.

First Federal Community Credit Union in Cedar Rapids was at 12.21 percent, almost hitting the cap.

Ronald Hummer, president of R.H. Hummer Jr. Inc., an Amana-based truck line, wrote that his credit union-backed lender, Community Business Lenders, could not extend him more credit during the downturn due to the commercial lending cap. His letter was among several given by the credit union league to U.S. Senators Chuck Grassley and Tom Harkin of Iowa.

Community Business Lenders assisted by accepting interest-only payments to help the trucking company through the toughest times, Hummer wrote. After applying to three commercial banks for a loan to purchase his trucking company's 2010 license plate tags, he said the company eventually received a one-year term loan from Community Business Lenders that enabled him to maintain more than 200 employee and contract drivers.

Disterhoft had a chance to talk to President Barack Obama about the credit cap in August. He said credit unions are willing to step into a void in lending that banks have left by tightening up on lending after the financial crisis hit.

He said credit union assets, primarily loans, are up 41 percent over the past four years.