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ICBA: Tax-Exempt Credit Union Push Makes No Financial or Fiscal Sense

Bill To Expand Lending Cap at Subsidized Institutions Puts Taxpayers, Financial System at Risk

Washington, D.C. (May 17, 2013)—The Independent Community Bankers of America® (ICBA) today expressed its strong opposition to controversial legislation that would allow tax-subsidized credit unions to expand into prohibited member business lending. The Small Business Lending Enhancement Act (S. 968), introduced by Sen. Mark Udall (D-Colo.) and 14 original cosponsors, would raise the cap on member business lending that Congress implemented to ensure that credit unions abide by their mission to serve people of modest means and avoid excessive risk-taking.

"ICBA and the nation's nearly 7,000 Main Street community banks continue to oppose the tax-subsidized credit union industry's campaign to extend its government-funded competitive advantage over taxpaying community banks," said Bill Loving, ICBA chairman and president and CEO of Pendleton Community Bank in Franklin, W.Va.. "Congress enacted the tax-exempt credit unions' business-lending caps for a good policy reason. Expanding the business-lending authority for taxpayer-subsidized credit unions would widen federal, state and local budget deficits and increase risks to our financial system while doing little to improve access to credit. A vote for S. 968 is a vote against community banks."

When Congress voted in 1998 to expand the credit union scope of membership to unrelated employer groups, it limited member business loans to 12.25 percent of a credit union’s assets to preserve the credit union mission of meeting the financial needs of consumers of modest means. However, the Small Business Lending Enhancement Act, which credit unions have worked to advance for more than a decade despite continued opposition in Congress, would more than double the 12.25 percent cap to 27.5 percent of a credit union’s total assets.

A recently released paper illustrates the threat to taxpayers and the financial system posed by expanding credit union business-lending powers. "An Analysis of the Impact of Expanding the Ability of Credit Unions to Increase Commercial Loans" found that:

  • Additional commercial lending by tax-subsidized credit unions would decrease tax revenues because taxes that would otherwise have been paid by commercial banks making those loans would not be paid.
  • Credit unions with high business-loan-to-asset ratios comprise a disproportionate share of failed credit unions since 2008.
  • Raising the cap could result in a marked increase in credit union failures.
  • The vast majority of credit unions are nowhere near their business lending limit, and more than 70 percent have no member business loans at all, which calls into question the need for the controversial legislation.
  • Existing law provides credit unions a variety of ways to make commercial loans without impinging on their business-lending cap.
  • Job-growth forecasts offered by proponents of a higher business-lending cap are highly suspect and based on assumptions that make little economic sense.

ICBA and the nation’s community bankers successfully opposed the tax-subsidized credit union industry's efforts to raise the business-lending cap last year. In the end, the credit union lobby conceded it did not have the votes it needed to clear the Senate as a standalone bill and tried unsuccessfully to attach the measure to must-pass legislation.

For more information, visit www.icba.org.

About ICBA
The Independent Community Bankers of America®, the nation’s voice for nearly 7,000 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit www.icba.org.

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