Supporters say lifting the cap could help create jobs by placing more financing in the hands of mom-and-pop shops, but bankers complain that such action would give credit unions -- whose tax-exempt status helps them offer lower interest rates -- an unfair advantage.
“There is a reason credit unions have tax and regulatory advantages, they're expected to serve a mission. That mission is not to become ever more like a bank, while keeping all of the benefits granted to them to serve people of modest means,” said Floyd E. Stoner, executive vice president of congressional relations and public policy for the American Bankers Association.
Fred R. Becker Jr., president of the National Association of Federal Credit Unions, said credit unions only have 5 percent market share in commercial lending, placing them light years away from the share held by banks. What's more, “the legislation is very conservatively crafted ... it's not just anybody who can increase their lending,” he said.
Udall's bill would require credit unions to have a strong balance sheet, more than five years of experience in member business lending, be well capitalized and be at or above 80 percent of the existing cap at least a year before applying for an increase.
Close to 300 out of 7,500 credit unions nationwide are at or nearing the existing cap, according to the National Credit Union Administration, a regulatory agency. Locally, Mid-Atlantic Financial Partners in Germantown is straddling the fence with 11.5 percent of its total assets being business loans to members, while the same is true for Kensington-based Lafayette Federal Credit Union at 11.4 percent.
“Because we are getting close to our cap, we had to curtail our production,” said Mid-Atlantic Financial's president Richard A. Wieczorek Jr. The amount of member business loans granted at the credit union decreased from 22 in 2009 to 16 last year.
Stoner argues that if credit unions want larger commercial portfolios, they should convert to a mutual savings bank. Lafayette FCU made such an attempt in 2007, but was met with resistance from credit union members and contended with balloting problems that led the board to cancel the conversion.
Peter Duffy, managing director at Sandler O'Neill & Partners, which works with credit unions and banks, said access to alternative capital and removal of certain membership restrictions are more valuable to most credit unions than a higher lending cap.