To bankers' dismay, three Wisconsin credit unions are banding together to make small business loans in the booming Fox Valley.

Banta Community Credit Union in Menasha, CitizensFirst Credit Union in Oshkosh, and Fox Communities Credit Union in Appleton said they intend to form a "service corporation," Business Lending Group, for such lending this month.

Wisconsin law lets credit unions form for-profit service corporations to offer products such as debit cards, equipment leases, and insurance to members.

Business Lending Group would be the first such entity focused on commercial lending.

It would make loans of up to $1 million in a market that the credit unions say are underserved by banks, according to local media reports.

Executives from the credit unions did not return calls to American Banker seeking information about Business Lending Group.

But Wisconsin banks, saying credit unions are stepping on their turf, have filed complaint letters with the state Department of Financial Institutions.

The banks say they want to be certain that the credit unions will lend only to members.

"Credit unions were formed to serve the little guy, not so that they can compete for business loans with taxpaying banks," said Harry J. Argue, executive vice president of the Wisconsin Bankers Association.

The Department of Financial Institutions has not responded to the banking industry's concerns, but spokeswoman Lisa Roys said in an interview this week that the new service corporation would lend only to members of the credit unions.

She also said the new entity would pay taxes on its income.

Still, community bankers in the Fox Valley-in central Wisconsin, about 100 miles from Milwaukee-see it as an unfriendly competitor.

David L. Blohm, president of Appleton-based American National Bank Fox Cities, said Business Lending Group might be able to pass on lower interest rates to commercial customers because the parent credit unions are tax- exempt.

Like small banks, credit unions are generally closer than large banks to the customer and can make decisions more quickly, Mr. Blohm observed.

Credit unions "can bring the whole thing to the table-the pricing advantage and the flexibility," he said.

But credit unions should be more closely regulated if they make commercial loans, Mr. Blohm said.

Ron Halvorsen, president of the Wisconsin Credit Union League, said banks should not worry about losing loan customers to Business Lending Group.

About 35 credit unions in the state are already offering credit to small businesses, he noted.

"Most of these loans go to people that banks won't lend to anyway," he said.

Mr. Halvorsen predicted that other Wisconsin credit unions may form similar ventures if the Business Lending Group takes off.

The others "are probably going to wait and see how successful that is," he said.

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