WASHINGTON–On the same day a CU executive testified before Congress here that “artificial” caps are hurting credit unions’ ability to serve America’s small businesses, a bill was introduced that would exempt loans made to veterans from counting against a CU's member business lending cap.
Gail Jansen, VP-business services and operations with Kinecta FCU in Manhattan Beach, Calif., told the House Subcommittee on Economic Growth, Tax and Capital Access House Small Business Committee that legislative proposals related to the Small Business Administration and SBA loans must take into consideration the vital role credit unions have played in a market other lenders are known to abandon during economically difficult times. Jansen was testifying on behalf of NAFCU during the hearing on the Small Business Administration's (SBA) 7(a) loan program.
Credit unions also play an important role in the on-going recovery from the financial crisis, and that “as widely recognized by elected officials in Washington, credit unions did not cause the financial crisis,” Jansen said. She cited statistics showing small businesses represent 99.7% of all employer firms, employ nearly half of all private sector employees, pay more than 40% of total U.S. private-sector payroll, and have generated over 60% of net new jobs annually over the last decade.
“Many small business owners are members of credit unions around the country and rely on their services to help make their small businesses successful. Our nation’s credit unions stand ready to help and, unlike some other institutions, have the assets to do so,” said Jansen. “Unfortunately, an antiquated and arbitrary member business lending cap prevents many credit unions from doing more for America’s small business community.
Artificial Cap on CUs Hurting Small Business
Jansen told the subcommittee the cap on member business loans included in 1998’s Credit Union Membership Access Act that limits each credit union’s member business lending to the lesser of either 1.75 times the actual net worth or 1.75 times the minimum net worth of a well- capitalized credit union (12.25%) is hurting credit unions’ ability to serve small business, and that numbers included in the legislation need to be updated.
“CUMAA also established, by definition, that business loans above $50,000 count toward the cap. This number was not indexed and has not been adjusted for inflation in the more than 20 years since enactment, eroding the de minimis level,” said Jansen. Where many vehicle loans or small lines of credit may have been initially exempt from the cap in 1998, many of those that meet the needs of small business today are now included in the cap due to this erosion. To put this in perspective relative to inflation, what cost $50,000 in 1998 costs $77,500 today, using the most recent consumer price index data. That is more than a 55% rate of inflation change that is completely ignored by current law and greatly hamstrings a credit union’s ability to meet its members’ needs.”
A Bigger Impact
Jansen acknowledged the government guaranteed portions of SBA loans do not count toward the member business lending cap, but pointed out non-guaranteed portions do.
“This could ultimately lead to a situation where a credit union may be an excellent, or even preferred, SBA lender but have to scale back participation in SBA programs as they approach the arbitrary cap,” said Jansen. “This would likely hit SBA Express loans first, as those have lower guarantees and thus may have a bigger impact on money available below the cap. We would urge Congress to support legislation to provide relief from the arbitrary cap on credit union member business lending.”
Jansen also spoke to issues related to SBA’s 7(a) budget proposal and the impact of fee structure changes on credit unions.
Jansen's full testimony can be found here.
Bill Would Exempt Loans to Veterans from MBL Cap
Meanwhile, Reps. Vicente Gonzalez (D-TX), Tulsi Gabbard (D-HI), Paul Cook (R-CA) and Don Young (R-AR) have introduced a bill that would exempt loans made to veterans from counting against credit union’s member business lending (MBL) cap. The bill would officially exclude extensions of credit made to veterans from the definition of a member business loan. CUNA has issued a statement in support of the legislation.
“This bipartisan legislation will make it easier for America’s veterans to access capital and invest in themselves and their communities," said CUNA CEO Jim Nussle. "Credit unions proudly serve tens of millions of active duty and veteran members and fully support veteran entrepreneurs and their families. We thank Reps. Gonzalez, Gabbard, Cook and Young for their leadership on this issue, and look forward to engaging with lawmakers as this bill moves through the legislative process.”
CUNA sent a letter for the record to the bill cosponsors that can be found here.
NAFCU's VP-legislative affairs, Brad Thaler, said in response to introduction of the bill, "NAFCU fought hard to have this bill introduced in the last Congress, and we thank Representatives Vicente Gonzalez, Tulsi Gabbard, Paul Cook and Don Young for their continued leadership on the issue. This bipartisan bill will improve veterans’ access to necessary capital by removing regulatory barriers that hinder credit unions' ability to meet the financial needs of our nation’s veterans.”
The Defense Credit Union Council also commended the four congressmen for intoducing the bill. "This is DCUC's top legislative priority for 2019. This is a perfect response to a November 2018 Small Business Association and Federal Reserve Bank of New York study on veteran business lending trends indicating low loan approval rates for veterans," DCUC said in a statement.Defense Council Response DCUC said it was instrumental in the bill’s initial introduction two Congresses ago, and has been urging Congress to pass this as a way to stimulate the economy and help small entrepreneurs.
"We are very pleased with the introduction of this bill," said Tony Hernandez, DCUC's president and CEO. "We look forward to working with Congress and the executive branch to open up additional channels for military members to obtain safe access to business loans so they can participate and build our economy."