WASHINGTON – Friday’s takeover of troubled Telesis Community CU, a California credit union weighed down by failing business loans, is sure to resonate on Capitol Hill this week as the banking lobby seeks to block a Senate vote on the bill to raise the member business loan limit for credit unions.
“It would be utterly obscene for Congress to allow credit unions to stray even further into prohibited business lending levels in light of Telesis’ collapse,” said Paul Merski, chief economist for the Independent Community Bankers of America, which has gathered 12,500 signatures on a petition opposing the MBLs bill. “Given Telesis was granted special MBL levels already it is a case study in how disastrous expanded MBL levels can be for the credit union sector.”
The bankers have been fighting credit unions’ efforts to raise the 12.25% of assets limit on MBLs since 1998, when it was enacted as part of HR 1151, the CU Membership Access Act, at the behest of ICBA and the American Bankers Association. While their opposition has focused on what they call “unfair competition” for small business loans by tax-exempt credit unions, they continue to insist that credit unions are ill-equipped to conduct business lending. Recent troubles by Telesis Community, Texas credit union giant Texans CU and several other credit unions specializing in MBLs are fueling that argument.
Telesis, a one-time $625-million credit union in Chatsworth, Calif., was one of the biggest MBL lenders, sharing out tens of millions of MBLs as loan participations to credit unions all over the country. It was one of 120 credit unions exempted by NCUA from the MBL cap. Over the past few years, Telesis has been embroiled in numerous business bankruptcies across the country as a result of soured MBLs in California, Oregon, Tennessee, Florida and other states.
Faced with growing losses on its MBL portfolio, state regulators with the California Department of Financial Institutions seized Telesis Community Friday night and assigned NCUA as a conservator of the troubled credit union.
“I’m certain Telesis’ failure will be Congress’ wake up call for not advancing the MBL expansion bill,” ICBA’s Merski told Credit Union Journal over the weekend.
