The National Credit Union Administration's approval of a much-debated overhaul of its regulation governing member business lending has lit a fire under lobbyists for banks and credit unions.
Bank groups blasted Thursday's move by the NCUA's board, promising to scale up efforts to convince Congress to re-examine the credit union industry's exemption from federal income taxes.
"Since NCUA is in the business of promoting the explosive growth of the credit union industry, rather than regulating it, we will be urging lawmakers to take a close look at what this tax-advantaged industry has become," Rob Nichols, president and chief executive of the American Bankers Association, said in a statement Thursday.
Nichols, who labeled the NCUA a "rogue agency," put the price of credit unions' tax exemption at $27 billion.
Camden Fine, president and CEO of the Independent Community Bankers of America, pulled no punches as he assessed the NCUA's treatment of member business lending. "ICBA and the nation's community bankers remain deeply concerned with the tax-exempt credit union industry's continued mission creep, which has been led by a regulatory agency that has repeatedly shown itself to be captive to the industry it is charged with regulating," Fine said in a separate statement.
"Member business lending is a controversial issue that has been debated in Congress for more than a decade," added Fine, who recently discussed the possibility of filing a lawsuit challenging the NCUA's separate plan to revise its field-of-membership regulation. "The NCUA has chosen to ignore this policy debate and sidestep Congress in a bid to satisfy the demands of large, growth-oriented credit unions that are subsidized by the American taxpayer."
Advocates for credit unions, meanwhile, are fighting back.
Carrie Hunt, executive vice president of government affairs and general counsel at the National Association of Federal Credit Unions, fired off a letter to lawmakers on Friday, urging them to approve legislation that would more than double the existing cap on member business lending, raising it from about 12.25% of total assets to 27.5%. Congress imposed the cap as part of the Credit Union Membership Access Act of 1998
Officials at the Credit Union National Association are also promising to press Congress for action on member business lending. In addition to bills in the House and Senate that would increase the cap, lawmakers are also weighing legislation that would classify loans made by credit unions for the purchase of one- to four-family dwellings as residential credits, rather than business loans.
"It's time for Congress to take action," CUNA President and CEO Jim Nussle said in a Friday statement. "CUNA and our state leagues will continue to work diligently on behalf of our members to seek further MBL change."
Given the stakes involved, it's understandable that passions are inflamed.
Member business loans currently on credit unions' books total $56 billion, according to the NCUA. Nussle claims that the industry could make another $14 billion of member business loans this year if not for the 12.25% threshold. Community bankers, who fear that much of that increase would come at their expense, have repeatedly referred to small-business lending as their core line of business while expressing contempt for credit unions' tax-exempt status.
Member business loans currently on credit unions' books total $56 billion, according to the NCUA. Nussle claims that the industry could make another $14 billion of member business loans this year if not for the 12.25% threshold. Community bankers fear that much of that increase would come at their expense, continuously referring to small-business lending as their core line of business while expressing contempt for credit unions' tax-exempt status.
Even without legislative action, the newly revised member business lending regulation should make it markedly easier for credit unions to originate more commercial loans.
As rewritten, the regulation eliminates a restriction that limited the size of credit unions' construction and development portfolios to 15% of net worth while abolishing a requirement that institutions obtain personal guarantees for all small-business loans.
Credit unions were eager to remove personal guarantees, and NCUA Chairwoman Debbie Matz made a special point to ask her staff to implement that modification as soon as possible. That change goes into effect 60 days from the date the NCUA publishes the revised regulation in the Federal Register. Everything else takes effect on Jan. 1, 2017.
"I heard loud and clear that when credit unions are required to have a personal guarantee on every business loan, they lose business from some of their best members," Matz said Thursday. "Some members who have well-established, strong businesses often simply can't wait for loan waivers. … That's why I insisted on implementing the part of this rule as soon as possible."
The banking lobby zeroed in on a provision in the revised regulation that determined that loans and loan participations involving nonmembers will no longer count against the 12.25% cap.
"Changing the way the business lending cap is calculated, and providing a means to exponentially expand credit union business lending by selling off slices of loans, is not regulatory relief — it is charter enhancement, plain and simple," Nichols said Thursday.
The NCUA's three board members, despite unanimously approving the revised member business lending rule, found plenty to squabble about during Thursday's meeting.
J. Mark McWatters, for instance, bemoaned the fact the board approved the new member business lending rule without first obtaining a legal opinion from the NCUA's Office of General Counsel, labeling the oversight as "poor governance."
While Matz and Vice Chairman Rick Metsger noted that lawyers in the Office of General Counsel drafted the revised rule — and could be inferred to support it — McWatters, also a lawyer, insisted that the board was entitled to the legal reasoning behind their conclusions.
The back-and-forth turned personal when McWatters suggested that language in the revised regulation might have a chilling effect on states that want to enact their own member business lending regulations.
McWatters complained that his colleagues refused to insert a brief paragraph on the subject that he had put together with NCUA staff the night before the vote.
Matz retorted by taking a dig at McWatters' attendance record before calling for a vote and ending the meeting before her colleague could respond.
Representatives for Matz and McWatters declined to discuss the exchange afterward.