Utah is about to ease restrictions on the business loans state-chartered credit unions can make, after bankers there agreed to compromise on the issue.
State law prohibits credit unions from making a business loan of over $250,000, but a new law expected to take effect May 5 would build in an annual increase in the loan cap, pegged to the consumer price index. It also would let credit unions make business loans to new members, instead of requiring such loans only go to those who have been members for at least six months.
Last week the Utah Senate approved legislation to reform the credit union lending laws, and on Tuesday the House approved it. Gov. Jon Huntsman Jr., a Republican, is expected to sign it into law.
Another provision of the legislation would increase the limit on loans a credit union can make to any one member — from 1% of its capital and surplus to 4%. That provision would apply to all credit union loans.
The changes resulted from weeks of negotiations between the Utah Bankers Association and the Utah League of Credit Unions.
Howard Headlee, the bank group's president, said the credit unions wanted to make the state laws the same as the federal ones but settled for relaxing the state laws to a smaller degree.
"Even with the provisions we've negotiated, our state charter is still far more restrictive than the federal one," Mr. Headlee said.
Utah would continue to cap total business lending for state-chartered credit unions at 1.25 times their undivided earnings plus other reserves, he said.
For federally chartered credit unions, total business lending is capped at 12.25% of assets, and business loans of less than $50,000 do not count toward that cap.
Those credit unions also are prohibited from making a loan to any one member that exceeds 10% of their capital and surplus — a much higher limit than the state allows.
Mr. Headlee said the new state law would benefit only Utah's 55 state-chartered credit unions, which are small and stick to a defined member group.
"Our concerns historically have always centered around the actions of a few of the largest credit unions that, in our view, are operating just like banks," he said. "We have always been willing to sit down and work with the smaller, traditional credit unions."
The $175 million-asset Beehive Credit Union in Salt Lake City is the largest one with a state charter, Mr. Headlee said. Its members voted last month in favor of converting to a mutual savings bank.
Utah has been a battleground state between banks and credit unions for decades. But as bankers there have succeeded in getting restrictions put on credit unions over the years, all the large ones, such as the $4.1 billion-asset American First and the $2.3 billion-asset Mountain America, have moved to a federal charter. About 15 state-chartered credit unions have made the switch since 1999.
Officials at the credit union group did not return phone calls.
Mr. Headlee said making the compromise will allow the bankers to focus on battling large federal credit unions on Capitol Hill. "Our fight is in Washington."
A new bill there, which he called "very offensive," aims to loosen the federal restrictions on credit unions by exempting more business loans from the 12.25% cap. (See story
Mr. Headlee said efforts by credit unions to raise the federal cap on business lending to 20% of assets have failed repeatedly, so the new proposal aims to double the maximum size of exempt loans, to $100,000.
