A tax exemption that has long outlived its usefulness is not the only arbitrary advantage credit unions enjoy over banks. They also benefit from a compliant federal regulator that often acts like a cheerleader for the industry it is supposed to be supervising.  

If there were any doubts about this advantage, they ought to be permanently banished by the National Credit Union Administration’s June proposal to gut limits on business lending by credit unions. The proposal is just the latest in a long string of actions by the credit union industry and its partisan regulator to make it easier for credit unions to expand their commercial portfolios. 

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Expand they have. Credit unions have moved aggressively into business lending, with average annual growth of 14 percent since 2004. Business loans made by credit unions have more than doubled as a percentage of total assets during that same period.  

This growth should concern all members of Congress, as it came in spite of a 12.25 percent cap that Congress in 1998 imposed on the percentage of credit union assets that could be allotted to business loans. Congress acted out of concern that credit unions should focus on their mission of serving consumers of modest means rather than businesses.  

Even then, many in Congress thought the cap too permissive. These members have been proven right, almost from the start. Loopholes have made the cap ineffective, and credit unions have failed, often as a result of poorly run business loan programs.  In fact, a quarter of all losses to the credit union deposit insurance fund since 2010 can be traced back to business loans—an outsized share considering the statutory cap.  

As it is, a congressional report pointed out last year that credit unions use these already expansive loopholes to finance big commercial transactions by swapping loan participations. For example, the nation’s largest credit union has a program to purchase 40-60 percent of commercial loans originated by other CUs, mostly going to multimillion-dollar commercial real estate projects. NCUA’s proposal would make that worse, “clarifying” that these complex syndication transactions are entirely exempt from the cap.  The NCUA proposal would effectively make the cap irrelevant—all without a single vote on Capitol Hill.  This would be an unjustified giveaway to the largest credit unions—those with more than $500 million in assets, which account for 76 percent of all CU business loans. 

Compounding the member business lending charade is the fact that “member” means virtually nothing to many credit unions anymore. When credit unions have so-called common bonds like “lives in Washington State,” or when they advertise that “anyone can join,” or when they use Potemkin “associations” to sign up virtually anyone as a customer, membership ceases to be a meaningful requirement. 

NCUA says it wants to “move away from prescriptive regulatory limits to general principles,” as NCUA Chairman Debbie Matz put it. Clearly, it is inconvenient for NCUA that those “prescriptive limits” were set by Congress.  When Matz testifies today before the House Financial Services Committee, lawmakers should insist that she and NCUA follow the law.  

If NCUA gets away with further eroding the already tenuous limits on member business lending, it will eliminate another distinction between credit unions and banks—and further undermine credit union lobbyists’ argument that they should pay no federal taxes, even when our citizens face an $18.3 trillion national debt.  

The credit union industry should perhaps be careful what it wishes for. They can’t have it both ways.

Keating, former Republican governor of Oklahoma, is president and CEO of the American Bankers Association.