WASHINGTON — In a break with the rest of his industry, the head of a credit union in southern California is speaking out against legislation that would allow the non-profit financial institutions to expand their commercial lending.
The chief executive officer of the Glendale Area Schools Federal Credit Union, located just north of Los Angeles, wrote a letter this week to Democratic and Republican leaders in the Senate opposing a bill to lift the statutory cap on lending by credit unions to their member businesses.
"There is a silent majority of credit unions that neither wants nor needs this legislation," CEO Stuart Perlitsh wrote, joining forces with banks that are fighting the bill.
The letter raised eyebrows in Washington, but credit union trade groups downplayed its significance, saying that thousands of credit unions support the legislation, and just one has spoken out against it.
In an interview on Thursday, Perlitsh said he is not certain the credit union industry as a whole has the expertise to properly judge risk on commercial lending, and he worries about the future cost of credit union failures.
"I'm just sick and tired of bailing out these debacles," he said.
But he also indicated that his credit union is considering switching to a bank charter, raising questions about his motivation for criticizing legislation that is also adamantly opposed by the banking industry.
"Right now we're looking at the cost-benefit analysis," Perlitsh said. "And right now it looks like it's a tie."
He later backed off on that idea, saying there is only a 1% chance that his credit union will switch to a bank charter. Perlitsh emphasized that the possibility of a charter change is not the reason that he opposes the legislation.
The Glendale credit union is one of about 2,100 credit unions nationwide, out of more than 7,000 altogether, that make member business loans, according to data from the National Credit Union Administration. But such loans make up only about 1.5% of the Glendale non-profit's $317 million in assets, which puts the institution far below the 12.25% statutory cap.
"This legislation, which more than doubles the member business lending authority for credit unions, will benefit only a few aggressive credit unions," Perlitsh wrote in the letter, which is dated Wednesday, April 11. "Currently, there are slightly more than five thousand credit unions that do not make business loans and less than 30 credit unions are near their member business loan cap."
In the letter, which was addressed to Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell, among others, Perlitsh argued that allowing credit unions to expand their commercial lending endangers the National Credit Union Share Insurance Fund.
"An increase in the business loan cap could easily become the next crisis in the credit union industry, which will require Congress to bailout the industry and its insurance fund," he wrote. "Business lending is inherently riskier than consumer lending."
"The vast majority of credit unions will not benefit from the expansion of the member business lending cap, but will pay higher future premiums arising from credit union failures, as some credit unions recklessly gamble expanding their business lending."
Some of the letter's arguments echo points made recently by bank lobbyists, who happily circulated it this week. For example, the letter cites the recent failure of a Chatsworth, Calif., credit union that was heavily involved in business lending as a reason to oppose the legislation.
Fred Becker, president of the National Association of Federal Credit Unions, which supports the legislation, downplayed the letter's significance, saying that it doesn't represent the point of view of most of the trade group's members.
"The great thing about our industry in my view is that people don't hesitate to make their contrary opinion known," he added. "Stuart is of course entitled to his opinion."
John Magill, executive vice president of government affairs at the Credit Union National Association, said members of Congress are hearing from thousands of supporters of the legislation.
"I would just say with regard to his letter, he's obviously in the minority," Magill said. "My guess is there was probably a banker or two against Tarp."
The Senate bill, sponsored by Colorado Sen. Mark Udall, would raise the cap on business lending to 27.5% of a credit union's total assets.
The Senate is expected to vote on the measure soon, and officials at credit union trade groups have expressed confidence that they will get the 60 votes necessary to pass it. The bill would then go to the House, where the Republican leadership has not committed to a vote.