The recent overhaul of the member business lending rule was a huge victory for credit unions, but the one thing the National Credit Union Administration couldn't touch was the cap — something CUs have been trying to get raised or removed for 18 years. Does this recent victory signal it's time for CUs to take up the cap battle with renewed vigor, or is it time to retreat?
Although the MBL cap hasn't been the singular focus of the credit union lobby, and most recently, the trade associations have not put as much muscle behind efforts to lift the cap, a bill related to it has been introduced into every single Congress since the cap was created.
But if the banker response to NCUA's modernization of MBL rules is any indication, there's still a lot of fire in their bellies over credit unions making business loans. Banking groups and individual bank executives filed thousands of comment letters blasting the proposal, signaling that, if nothing else, bankers will not walk away from this fight should CUs pursue the legislative fix necessary to change or remove the cap.
According to NCUA data, of the 5,954 Federally Insured Credit Unions (FICUs) only .3% are at 100% of the MBL cap or above and 1.5% are within the 80-99.9% range of caps. Together, these two groups total 106 FICUs or 1.8% of the total.
With such a small portion of the overall credit union market ostensibly impacted — is it worth refocusing advocacy efforts on the cap? That depends on whom you ask.
"It's an impediment on moving forward that was put there really as a pay-off for the bankers," said Geoff Bacino, partner at Bacino & Associates and former NCUA board member. "Congress has deemed that the limit should be 12.25. Right now I don't see anything that's going to change it — you don't have many there now — but I still will contend it is affecting decisions CUs are making and that creates a problem."
Indeed, some credit union executives have argued that the primary reason so few credit unions are at or near the cap is not so much an indication that few credit unions care about this issue — rather, it is simply an indication that CUs are following the rules.
Still, not everyone thinks lifting the cap should be a focal point.
HOW DID WE GET HERE ANYWAY?
"I'm not sure if anybody knows why MBL is a priority," said Jim Blaine, CEO of the $33 billion State Employees' Credit Union in Raleigh, N.C. The well-known CEO noted he has never seen a fully-researched explanation as to why the MBL issue is one of the most important for the industry. "If [the CU trade association] have done their research on the topic, they have failed to communicate it to their constituents," he observed, adding, "percent-wise — it's clearly not a major issue."
The two-million member SECU disaffiliated with CUNA in 2014 due to disagreements about the structure of representation in the organization, it has since joined back. "We didn't feel like we had direct access to CUNA to discuss these kinds of issues about how priorities are set and what's important," Blaine said. At the time, SECU was paying $346,000 in dues to CUNA and the state league.
Both CUNA and the National Association of Federal Credit Unions have suggested that increasing the cap to 27.5% would be sufficient to relax the burden on the 106 CUs who are approaching or have already reached the cap. Moreover, proponents have argued, increasing the cap would tear down the barriers stopping more credit unions from entering the MBL market, even as small businesses continue to lament the lack of institutions willing to lend them much-needed capital.
Count Dennis Dollar, former NCUA Chairman and now a CU consultant, among those who believe the cap is having a chilling effect on CUs entering the MBL market. "Anything that removes strategic options for credit unions has potential long-term ramifications. Options are always good, even if a credit union does not choose to use them. They should not be unnecessarily and arbitrarily limited by statute," Dollar said.
REMEMBER CHECKING/SHARE DRAFTS?
Indeed, the idea that the number of CUs currently closing in on the cap — or even the relatively small number of CUs actively making business loans — is a reason not to pursue lifting the cap is belied by credit unions' past experiences with other products and services that weren't considered traditional offerings by CUs, Dollar suggested. Case in point: checking accounts in the 1970s. At that time, Dollar said, there weren't many credit unions looking to offer checking accounts when advocacy efforts were in full force to make that change. Today, he noted, you would be hard pressed to find many credit unions that do not offer a checking account.
"The emergence of time and marketplace changes makes good policy of the retention of as many strategic options as possible. The need to transfer the authority over business lending caps from Congress to the regulators is a good example of a strategic option for well-managed loan portfolio growth that is worth the industry fighting for," Dollar said.
But others in the industry still contend MBLs are only an issue for the largest credit unions.
"I don't see the economy going anywhere; we have over-stimulated this economy. The stock market is well overdue for a correction. This would be a horrible time to stretch out into member business loans," said Gregg Stockdale, principal consultant at San Dimas, Cali.-based GSCU Consulting and former CEO of 1st Valley CU of San Bernardino.
But the other big factor is what current NCUA Chairman Rick Metsger calls "the immovable object:" Congress itself.
The current situation in Washington has gotten progressively worse during the last few sessions. The 112th and 113th Congress, the previous two legislative sessions, that were frequently described as gridlocked with only 284 and 296 enacted laws, respectively. And despite GOP majorities in both chambers, the current session is shaping up to follow suit, with just 177 laws enacted so far, and little hope of more action because of the tumultuous and unpredictable presidential election.
"It's hard to see how ramping up any sort of pressure on business lending right now makes sense given the congressional schedule, particularly with the election coming up, no matter what happens we will have a new administration, new composition of the Financial Services committee...and a new chairman of the Senate Banking committee," said Ryan Donovan, chief advocacy officer for CUNA.
BRING IT BACK TO NCUA
Credit unions might be better off pushing NCUA, even though the agency just recently overhauled the MBL rules. Former CUNA Deputy General Counsel Mary Dunn, who helped found the CU Counsel consultancy, believes that the NCUA may have more legal authority to make changes to the MBL on specific regulations. "Small businesses strengthen and run our economy," Dunn noted. "If credit unions can help small businesses it's a positive thing."
NCUA Chairman Metsger agreed. "Credit unions might do better engaging NCUA than engaging the immovable object," he said. "There are some areas where we are limited statutorily, and then we have broad authority in others. They might get a lot further working with us. What we're doing with field of membership is a perfect example. NCUA cannot touch the cap, but credit unions should be looking at redefining what counts against the cap."
