Credit unions, banks spar over Velázquez legislation

Setting off a fresh round of verbal sparring between credit union and bank lobby groups, House Small Business Committee Chairwoman Nydia Velázquez (D-N.Y.) has unveiled legislation to boost the share of credit union loans under Small Business Administration (SBA) lending programs.

Unlike their bank rivals, credit unions are barred from loaning in excess of 12.25 percent of their assets to businesses. But the bill would tweak the Federal Credit Union Act such that the full amount of business loans made under SBA programs would no longer count against the cap. It would also direct the SBA to provide 85 percent guarantees on credit union loans made to businesses in underserved areas.

The bank lobby promptly attacked the bill, arguing that it would free up capital for credit unions, which are tax-exempt, to engage in unfettered commercial lending.

“What this essentially does is allow the credit unions to do more business lending,” James Ballentine, the director of economic development at the American Bankers Association, said. “It’s a very strange concept that a non-taxpaying entity would get to take advantage of a taxpayer program.”

The legislation surprised bank lobby groups, which are battling a more sweeping bill to lift the credit union cap on business lending to 20 percent and reduce the amount of capital credit unions are required to hold against their loan portfolios.

Called the Credit Union Regulatory Improvements Act of 2005, or CURIA, the legislation was introduced last month by Reps. Paul Kanjorski (D-Pa.), the chairman of the House Financial Services Subcommittee on Capital Markets, and Ed Royce (R-Calif.).

The two major credit union lobbies, the National Association of Federal Credit Unions (NAFCU) and the Credit Union National Association (CUNA), trumpeted chairwoman Velázquez’s bill as evidence of credit unions’ eagerness to lend in poorer neighborhoods.

“With the introduction of CURIA and now this small-business lending bill, members of Congress are clearly sending a strong message that credit unions are the solution to take care of those in areas where other financial institutions are not,” Dan Berger, NAFCU’s senior vice president for government affairs, said.

But the president of the Community Bankers of America, Joe Belew, disputed the notion that credit unions are especially willing to lend to borrowers in such areas.

“Credit unions have an exemption from CRA and might better serve their communities by asking to be covered,” he said, referring to the Community Reinvestment Act, which prohibits banks and thrifts from targeting only wealthy neighborhoods.

Velázquez introduced her bill partly in response to testimony by CUNA at a recent hearing that red tape and administrative fees had hampered credit unions from participating in SBA lending programs. Credit unions account for only a tiny share of all SBA loans.

In addition to changing the regulations governing credit unions, the legislation would establish an outreach program to assist credit unions in boosting their SBA loans. A separate bill that passed out of the Small Business Committee last month would slash fees on SBA loans and reinstate previous SBA lending programs that were more streamlined.

Velázquez hopes that the broader bill, which benefited from the strong backing of the credit union lobby, will lay the groundwork for an SBA reauthorization later this year.

The credit unions’ mobilization of their vast membership in support of that legislation was a key factor in the chairwoman’s decision to introduce a second bill targeted at credit unions, according to Dean Sagar, CUNA’s vice president of legislative affairs.

“I think we and some other groups really brought a huge network to the support of her legislation,” he said.