To the Editor:

In a March 13 letter to the editor ["End the CU Free Lunch"], New Jersey banker Barry Zadworny writes that the federal tax exemption for credit unions should be revoked in exchange for passage of a bill lifting the cap on credit unions' member business lending, arguing there should not be a "free lunch."

Aside from the fact that talk of a "free lunch" rings extremely hollow from an industry whose institutions big and small have required unprecedented amounts of government assistance, Mr. Zadworny's point is premised on the false notion that credit unions stray from their traditional mission when engaging in member business lending.

The fact is, credit unions' traditional mission included member business lending without portfolio restrictions. From their inception in the early 1900s until 1998, credit unions had no restrictions on member business lending. As for our federal tax exemption, it is premised on credit unions' structure as not-for-profit, member-owned financial cooperatives — a structure that does not change with the decision to offer member business loans.

Sen. Schumer, quoted in The Washington Post, stated very succinctly why his proposal makes good sense: "This proposal is very much needed on its own because banks are not lending to small businesses and credit unions will." The senator's point is buttressed by the Federal Reserve's Senior Loan Officer Survey, which continues to show that the majority of banks have cut back on small-business lending (75% in the October '08 survey).

A white paper recently issued by the Competitive Enterprise Institute further concludes that expanding credit union small-business lending would yield much-needed economic stimulus.

Mr. Zadworny's letter also exaggerates problems credit unions have experienced, making several individual cases (unrelated to business lending) sound reflective of the industry at large. As not-for-profit institutions, credit unions are more conservatively managed, and the numbers bear this out. The net chargeoff rate for credit unions in 2008 was 0.84% while the average bank rate was 1.24%. Our capital ratio was 10.9%, higher than banks' 9.4%.

And net chargeoffs for small-business loans have been markedly less for credit unions than for banks. As of December 2008, the net chargeoff rate for credit union member business loans was 0.33%. For banks, the rate was 1.11%.

Lastly Mr. Zadworny cannot be serious when he refers to the credit union sector as "huge." Credit unions comprise only about 6% of the market.

Credit unions are staying true to their mission. Lifting the arbitrary cap that now exists on member business lending, as Sen. Schumer proposes, will help credit unions further that mission.Daniel A. Mica
President and CEO
Credit Union National Association

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