There was remarkable news this month for tax-exempt credit unions seeking to expand their business lending beyond their congressionally mandated 12.25% cap: The massive $50-billion Navy Federal Credit Union launched a program to buy up commercial loans from other credit unions so it can expand further into commercial lending. For the few credit unions out there at or near the business lending cap, this will help them circumvent it. They didn't even need a controversial act of Congress: a little nepotism was all it took.
Nevertheless the tax-exempt industry continues to seek more than double its business-lending authority via contentious legislation pending in Congress. Their campaign sidesteps the fact that lawmakers implemented the cap in the first place to ensure credit unions abide by their tax-exempt statutory mission to serve people of modest means with a common bond and to avoid excessive risk-taking.
So one would think credit unions would be happy to see a workaround to the conflict-ridden legislation in Congress. That is, at least those credit unions anywhere near the cap — which is only about 2% of the industry. The remaining 98% of credit unions already have ample room to expand. Navy Federal Credit Union is one of them. Its $179 million business-loan portfolio is less than half of a percent of its total assets, leaving plenty of room to expand.
And we should also leave out those in the industry opposed to the very idea of expanding business-lending authority. That includes the credit union executives who in April wrote to Congress that the failure of several large credit unions was due to excess business lending, that their industry is unprepared for expanded business-lending authority and that a silent majority of credit unions neither wants nor needs a cap hike bill in Congress.
Navy Federal's plan gives everyone else in the industry another way to get around the cap. In addition to the exemptions for loans under $50,000, Small Business Administration loans as large as $5.5 million and loans secured by the borrower's primary residence are also exempt. All such business loans can be made today by credit unions if they wish – with no concerns about a cap.
Despite all these credit union business lending opportunities, and a generous tax-exempt status too, some credit unions relentlessly press for legislation. The taxpaying community banking sector will continue to stand firm in exposing this bad public policy legislation and will refuse to compromise. There is not a single legislative proposal out there that assuages our outright opposition to any bill carrying these risky credit unions' water. But with Navy Federal stepping in to save the day for this handful of aggressive tax-exempt credit unions, I might need a reminder as to why the legislation is necessary in the first place.
Camden R. Fine is the President and CEO of Independent Community Bankers of America.