Wednesday’s House subcommittee hearing on member business lending (MBL) was the site of the latest back-and-forth between credit unions and banks.
Entitled “H.R. 1418: The Small Business Lending Enhancement Act of 2011,” the hearing allowed the House Financial Services subcommittee on financial institutions and consumer credit to hear testimony from bankers and credit union leaders related to raising the cap on credit union business lending to 27.5 percent of assets from its current 12.25-percent limit.
According to Northwest Credit Union Association (NWCUA) President Troy Stang, who attended the hearing along with Gene Pelham, President/CEO of Rogue Federal Credit Union, and Phil Jones, President/CEO of Harborstone Credit Union, representatives of the banking industry weighed in as expected, claiming that credit unions, because of their tax exemptions, have an “unfair advantage.”
“The panel got to hear a lot of typical bank rhetoric,” Stang said. “I was glad to hear credit unions refute the bank claim that we had an unfair advantage. If it’s so unfair, why don’t banks change their charters?”
Stang went on to outline a subtle but important distinction, explaining that the basis for the credit union tax exemption comes more from philosophy and constitution than from the specific nature of the product or service being offered to members. In other words, the tax exemption comes not from what services credit unions deliver, but is instead rooted in the way in which they deliver their services.
“It is the structure of credit unions, the not-for-profit financial cooperative structure, which is aligned with our tax exemption, not our product offering,” Stang said. “This bank rhetoric on the MBL expansion being aligned with taxation of credit unions is the same rhetoric that generations before us have heard anytime credit unions want to be a part of serving their membership, the communities in their local areas.”
He clarified by comparing the fundamental difference between credit unions and banks to other sectors.
“It’s like the YMCA versus 24-Hour Fitness,” he said. “They both have treadmills, but that doesn’t mean the YMCA should be taxed. They are a not-for-profit charter.”
Pelham, meanwhile, saw the difference in philosophy most vividly illustrated when a banker suggested that credit unions looking to grow their member business lending operations convert to bank charters.
“They clearly don’t understand not only the structural difference with us being not for profit, but the emotional and charter difference,” he said.
Despite the political jockeying, the hearing was most importantly an opportunity for legislators to gather information and ask questions. Shelley Moore Capito, chairman of the House Subcommittee on Financial Institutions and Consumer Credit, made this clear in her opening statement, offering a broad outline of the questions that would need to be answered and the claims that would need to be substantiated for the legislation to continue moving forward.
“I am specifically interested in learning more about the breadth of credit unions involved in member business lending, why more credit unions are not currently involved in member business lending, and the cost benefits of increasing the cap on credit union member business lending,” she said.
Bank testimony attempted to cast doubt on the need for raising the MBL cap in the first place and on its likely benefits. Credit unions, meanwhile, worked to provide evidence of widespread demand for increased business lending and of its unique potential as an economic catalyst. Similarly, bankers described commercial lending as risky enough to potentially jeopardize credit unions’ safety and soundness, while credit union testimony countered by explaining how increased business lending provides an opportunity to minimize risk by diversifying investments.
“There was a lot of questioning about how much demand there really is on Main Street,” Stang said. “The big banks claim there isn’t [demand for increased member business lending]. The credit unions, of course, do have demand, and we’re following up with the evidence.”
Ultimately, Pelham stressed the positive, describing the hearing as a platform for the credit union movement to share its message directly with legislators.
“I thought it was a great opportunity for credit unions to have their day in front of our elected representatives and to share their perspective on why expanding the MBL program will help Americans get back to recovery with more job creation,” Pelham said.
Testimony was heard from five individuals, two of which represented the banking industry and three of which came from the credit union movement. Sal Marranca, President and Chief Executive Officer of Cattaraugus County Bank, testified on behalf of the Independent Community Bankers of America, and Albert C. Kelly, Jr., President and Chief Executive Officer of SpiritBank spoke as Chairman-Elect of the American Bankers Association.
Gary Grinnell, President and Chief Executive Officer of Corning Credit Union, testified on behalf of the National Association of Federal Credit Unions (NAFCU); Jeff York, President and Chief Executive Officer of Coasthills Federal Credit Union spoke on behalf of the Credit Union National Association (CUNA); and Mike Hanson, President and Chief Executive Officer of Massachusetts Credit Union Share Insurance Corporation testified as well.
The next step for the current MBL legislation would be a full hearing, after which the bill would move to the House floor.
The subcommittee hearing was just one part of a productive week for the NWCUA delegation, however, which also got a special briefing by CUNA and the CUNA board and met with legislators to continue providing information and perspective.
“The state-specific numbers we shared with our delegation are that if the bill was passed, conservative estimates show that in Oregon, we would see $254 million in new capital over the first 12 months and 2,763 new jobs,” NWCUA Director of Legislative Advocacy Jennifer Wagner said. “In Washington, we’d see $565 million in new capital and 6149 new jobs.”
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