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Credit union bill is a curse in disguise

By Frank Keating,

Credit unions are pressuring Congress to increase their congressionally mandated business lending cap, promising that it would increase small-business lending (“Small businesses need Congress to lift credit unions’ lending cap,” April 23). Don’t believe it.

This is just another effort to push bad public policy by distorting the facts. The harmful legislative proposal by Sen. Mark Udall (D-Colo.), S. 2231, the Small Business Lending Enhancement Act, would just shift loans that are already in the pipeline at community banks to credit unions that don’t pay taxes. Taxpaying community banks have been serving small businesses and making these loans in towns across America for years.

Here are the facts: Credit unions already have ample small-business lending authority — loans under $50,000 don’t count against the business lending cap. This proposal would simply allow a new breed of non-taxpaying credit unions to go after large commercial loans they have little experience making, raising significant safety and soundness concerns.

Even credit unions themselves recognize the risks associated with this legislation. Credit union executives from Michigan, Washington state and California have been vocal in their opposition, telling legislators that this measure would encourage reckless lending and lead to an increased number of credit union failures.

“The vast majority of credit unions will not benefit from the expansion of the member business lending cap, but will pay higher future premiums arising from credit union failures, as some credit unions recklessly gamble expanding their business lending,” Stuart Perlitsh, chief executive of the $317 million Glendale Area Schools Federal Credit Union, wrote in an April 11 letter to Senate leaders.

And that’s just the beginning.

If Congress does the bidding for this small minority of credit unions, it will severely harm neighborhood community banks. It doesn’t take an economist to see that an industry subsidized by the federal government will easily out-price one that pays roughly one-third of its revenue in taxes, a typical bank’s tax burden. Or to know that this is a classic example of catering to a special interest group.

Another fact is also clear: Sanctioning the exodus of business loans from an industry that pays taxes to one that does not will put the Treasury in an even deeper hole. A similar bill in the last Congress would have cost taxpayers $354 million in lost revenue over the next 10 years. This one would cost even more — just as lawmakers begin to address our country’s historic budget deficits.

Fortunately, there is a more reasonable option for credit unions that would like to expand their business lending — convert to a mutual savings bank charter. Some have already taken advantage of the flexibility this option provides.

This is far more sensible than promoting more tax-dodging that runs up the national debt and damages community banks that are the backbone of their local economies.

Frank Keating is president and chief executive of the American Bankers Association.

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