Credit unions across the country are urging Americans to take a stand and tell their senator that they don’t want to wait for economic recovery--now is the time to act.
Since 1998 credit unions have been restricted from lending above 12.25% of their assets, a cap which has become problematic for the thousands of small business owners trying to make it in a down economy. Prior to 1998 this cap didn’t exist, but during a battle to make it easier to join a credit union in the 90’s, credit unions conceded to the cap.
Now with the economy continuing to gasp for life and small businesses having nowhere else to turn for loans, the country is looking for logical ways to get America back on its feet. One easy and obvious way to help dig the country out of the financial doldrums would be to expand the credit union business loan cap to 27.5% and prevent the small to medium size business owner from collapsing.
Although the topic has been extremely hot since the economy imploded in 2008, today businesses owners, banks and credit unions are biting their collective nails waiting for a decision on Senate Bill, S. 2231 of the Credit Unions Small Business Jobs Act.
Proponents of the bill say that passing it could possibly make up to $13 billion in new loans to small businesses in the first year alone. Plus these opportunities could mean the creation of 140,000 new jobs, putting more people back to work. “In North Carolina alone, it would create approximately 2,200 jobs and $200 million in credit to small business,” says Cristen Fletcher, Marketing Communications at Truliant Federal Credit Union ($1.5 billion, Winston-Salem, NC). “With higher than average national unemployment and with small business likely to drive economic recovery, our small businesses and the overall local economy would benefit.”
Bill Passage Impacts Real People
“We have one story, amongst many of one of our business members just trying to survive in this economy,” says Joe Mecca, Marketing/Advertising Manager for Coastal Federal Credit Union ($2 billion, Raleigh, NC). “The member decided to reposition his business in order to provide new services. He wanted to branch out into construction clean up and by adding a debris removal division, he could expand services and spread out his business.”
However, when it comes to business expansion most owners need to purchase the right equipment. “The member needed a loan in order to purchase the necessary equipment, however he couldn’t obtain a loan from a bank and was worried he wouldn’t make it through the economic downturn.”
Mecca says that the member was able to obtain a loan from Coastal Federal. “We made sure he got the loan and was able to survive.”
He says that stories like this will hopefully resonate with lawmakers as they possibly vote on the bill as early as today. Although a vote could come rapidly, Mecca urges proponents and members to continue to push. “We plan to visit one of our senators this week and introduce the senator to one of our members who was turned down by five banks before receiving a loan through us.”
He explains that this member had a business plan, tried to get the banks to review her plan but instead of being given a chance and a thorough review, she was simply rejected by the banks. “We spent time with the member reviewing her plan, worked with her to ensure it was solid and then made the loan. This member, who has a fitness company and is a personal trainer is a huge supporter and wants to tell her story.”
Fletcher says that she finds banks to often be less flexible as to timing and structure. “Their products are typically rigid and more cookie cutter,” she explains. “You must meet their strict specific criteria to get their loan. Additionally, we are more consistently in the market with pricing and structures versus banks. Banks will make blanket decisions to be ‘out’ or ‘in’ covering the whole marketplace. Our process is to review each program on its own merit to determine adjustments that may be necessary to both maintain credit safety for us, as well as, provide a high level of consistency in the market and meet the needs of our business members.”
“We have several instances where the credit union's loan significantly improved cash flow and finance costs, thus strengthening the business considerably,” recalls Bill Anderson, President/CEO of Mid Oregon Credit Union ($160 million, Bend OR). “That type of help certainly makes it easier for a business to survive.”
Roadblocks that Could Stop Passage
Although the stories point to sound reasons why the cap should lifted, banks continue to push back and rally to prevent credit unions from increasing the cap. They contend that credit unions have been provided with numerous advantages such as tax exemption and that it would be unfair to increase the cap.
“The argument that credit unions don’t pay corporate income taxes is a hollow one,” Fletcher defends. “We pay property taxes, which helps fund our schools, our members and small businesses that we help grow pay taxes much like Subchapter S banks, we pay payroll taxes, etc. Counter to that argument is that most banks have not paid taxes in recent years and have received TARP money that has not been repaid in many cases.”
In a letter to the Senate and Congress, Frank Keating, President/CEO of the American Banker’s Association pleads with lawmakers to reject the bill because community banks are actually meeting the small business owner’s needs.
In his letter he writes, “While the credit unions have attempted to emotionally hijack Congress with claims of increased lending and job creation, I urge you to look at the facts. Small business needs are being met by community-based banks every day. The National Federation of Independent Businesses (NFIB) has acknowledged that 93 percent of small businesses have reported that all their credit needs were met or that they were not interested in borrowing.”
Mecca says that in some cases credit unions and community banks will work together for the member’s common good. “It’s interesting that it’s the community bankers who are the most vocal because they won’t lose business to us,” he says. “We often work together with a community bank to help the member secure lending and in many cases, they are sending business to us. However, they won’t say that to their senators.”
“I have not heard a valid argument for restricting business lending,” Mecca says. “Our business lending portfolio performs better than our consumer loan portfolio. We’re not taking risks and we are checking to make sure the member’s business plan is in order before going forward.”
Anderson says that this issue should not be another “banks versus credit unions ordeal” and believes the bill has a 60/40 chance of passing in the near future. “This is not a bank versus credit union issue. If anything, it is a bank versus small business and lawmakers don't want to be seen as anti-jobs and small business.”
Bottom line, the banks and their trade associations automatically oppose anything that helps credit union members, Fletcher believes. “It is disheartening to our communities and not in the best interests of bankers themselves to oppose something that the community needs but they are not able to provide,” she says. “It appears that they are allowing their self-interests to trump the need for jobs and the growth of small business. There is and will be plenty of room for both community banks and credit unions to grow and serve their communities.”
“The CRA argument is also a red herring,” Fletcher continues. “Congress did not view credit unions in the same light as they did banks when CRA was created and we have remained investors in our communities since our members are the community. There is little interest in extending CRA to credit unions. With the exception of CRA, credit unions are subject to each and every regulation of comparable banks.”
Consumers Should Act Now
Mecca says that as the bill sits in the Senate and could go for a vote any minute, now is the time to act. His credit union is urging members to write to their senator immediately--the more power and voices the better the chance the bill will pass.
“The funds are available so this isn’t a bailout type of situation where it will cost the country a dime,” he says. “Members can make phone calls or send their senator a quick email. From our credit union’s standpoint we are seeing activity through Facebook where people are actually sharing this message with their friends and network.”
Mecca says that he posted an easy messaging system through CUNA on Coastal Federal’s website and people are responding. “It’s encouraging to see people who have used the tool to submit a letter to their senator. We’ve seen some strong numbers over the last week and are telling people to continue to write.”
Anderson feels that not passing the bill would be a missed opportunity of tremendous proportions. “The impact would be the lost opportunity of improving small business health. If nothing is done, then the economic recovery will be that much slower than it could have been.”
“It would certainly be significant to businesses in my area and I know of many others as well,” he adds. “It would certainly be significant to each and every person that is given a job.”
Fletcher remains optimistic that the cap will inevitably be raised because this is not a bank versus credit union issue, but because it is a small business versus special interest banking battle. “Small business will ultimately win because of their political clout. They create most of the jobs and drive the economy. The bank lobby will eventually have to step aside to those more powerful interests.”
Don’t wait to act, find a credit union and tell them how you feel about raising the business loan cap NOW.