WASHINGTON - Banking advocates are criticizing a California lawmaker's bill that would loosen restrictions on credit unions' commercial lending.
The Faith-Based Lending Protection Act, introduced June 20 by U.S. Rep. Edward R. Royce, "is a Trojan horse attempt by credit unions to expand their commercial lending activities," said Keith Leggett, senior economist at the American Bankers Association.
Rep. Royce, a Republican from California's 39th District, would indeed widen credit unions' commercial lending opportunities with his bill - but not by much. Under his legislation, a credit union's loans to churches and religious nonprofit groups would no longer count toward its commercial lending caps. The caps limit commercial lending to 12.25% of an institution's assets.
The bill was referred to the House Banking Committee's subcommittee on financial institutions and consumer credit. Hearings are expected to be held in September, a House Banking Committee spokeswoman said.
Rep. Royce's spokesman, Brian Wilkes, said the four-term congressman did not intend to side with credit unions in their ongoing battle with banks. He simply views the bill as a means to help religious groups that operate soup kitchens, shelters, schools, and other programs without giving them government aid, Mr. Wilkes said.
In a press release the congressman said, "Despite the clear social good that these programs provide, it is often difficult for them to secure the necessary capital resources at favorable rates to allow them to carry on this critical community work."
His bill has attracted 17 co-sponsors. But it was bound to draw fire from banks. Indeed, Mr. Leggett labeled "poppycock" the notion that churches could not get similar loans from banks.
Credit unions "want to take small bites out of the commercial lending restrictions," he added. "If we let them, what is going to happen? Next they will extend it to all nonprofit organizations. Then, before long, you have credit unions engaged in all types of business lending."
Banks and credit unions have been at odds over commercial lending caps since the passage of the 1998 Credit Union Membership Access Act, which lifted a number of restrictions on credit union membership. Wisconsin banks this year exchanged barbs with credit unions in defeating a proposal that would have allowed credit unions to make more business loans.
Banks have argued that if credit unions want to make commercial loans, they should convert to banks. Credit unions, meanwhile, say that the 12.25% ceiling already in place is too restrictive.
"We see no reason for the cap, and we support lifting it completely," said Fred R. Becker Jr., president and chief executive officer for the National Association of Federal Credit Unions in Arlington, Va., which represents more than 1,000 such unions.
The Credit Union National Association in Washington, the largest credit union trade group, also backs a removal of commercial lending restrictions, spokesman Pat Keefe said.
Mr. Becker said the Faith-Based Lending Protection Act would only make a "small dent" in the commercial lending cap, "but it is definitely moving in the right direction."
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