A legal battle set to play out this week between community banks and the National Credit Union Administration will determine whether the agency may continue sidestepping the legislative branch to the benefit of the tax-exempt industry it is charged with regulating.
My organization, the Independent Community Bankers of America, recently
Our lawsuit challenges the NCUA rule issued earlier this year allowing credit unions to exclude purchased commercial loans and commercial loan participations from the 12.25% member business lending cap — as long as the borrower is not a member of the purchasing credit union. This significantly alters the NCUA's approach to commercial lending by allowing credit unions to circumvent the cap by simply purchasing loans and participations from other credit unions.
Not only does the NCUA's rule expand government-sponsored advantages for credit unions and introduce new risks to the financial system, it is simply illegal based on existing law. The plain language of the Federal Credit Union Act, as amended by the Credit Union Membership Access Act, expressly limits the amount of member business loans that may be held on credit union balance sheets. The law also defines a member business loan as any commercial loan on the credit union's balance sheet, regardless of whether it was originated or purchased by the credit union.
The NCUA has not offered any rational explanation for this radical policy change. In fact, the agency even acknowledges
In addition to the NCUA's flawed legal rationale, the rule itself is poor public policy. All commercial loans, whether originated or purchased by a credit union, affect safety and soundness. Congress has noted that credit union commercial lending restrictions are intended to prevent risks at these financial institutions and to ensure credit unions continue to fulfill their specified mission of meeting the needs of consumers by emphasizing consumer, not business, lending.
Further, only the largest, growth-oriented credit unions would
The NCUA's decision to sidestep congressionally mandated restrictions on credit union commercial lending raises suspicions about the agency's motives. In fact, as the credit union industry and the institutions comprising it have grown in asset size over the years, the NCUA has increasingly acted as a rubber stamp to advance the tax-exempt industry's regulatory wish list.
For instance, a separate lawsuit recently
Unsurprisingly, the credit union industry's largest trade groups have
Enough is enough. Our federal agencies should work in accordance with the law toward the common good — not on behalf of taxpayer-subsidized special interests.
Camden R. Fine is president and CEO of the Independent Community Bankers of America.