By TED CARTER
The National Credit Union Administration is usurping Congress in its proposal to loosen restrictions on credit union business lending, the nation’s two major banking advocacy organizations say.
Banks and the tax-exempt credit union industry have decades of strife behind them. But after the banking crisis of the last decade and the stringent regulations that followed it, bankers are especially sensitive to any tilting of the competitive field.
The subsidy in the form of freedom from income taxes makes today’s credit unions indistinguishable from the banking industry, bankers say.
For their part, credit unions argue they need new business to cover the costs of meeting their own post-crisis regulations. They must grow, they say, in order to meet a federal mandate to bring financial services to segments of the population banks are not inclined to serve.
Bankers charge the newest tilting is coming from the National Credit Union Administration, an agency they say is becoming a cheerleader for a $1 trillion industry it supervises.
The American Bankers Association and Independent Community Bankers Association say they are especially troubled by a proposal from the National Credit Union Administration, the federal regulator of credit unions, to raise a business lending cap of 12.25 percent of assets Congress enacted in 1998. Both organizations have submitted bluntly worded letters to leaders of the Senate Banking Committee and House Financial Services Committee.
The letter from the American Bankers Association, or ABA, carried the names of each state bankers association, including the Mississippi Bankers Association. The letter from the Independent Community Bankers Association, or ICBA, carried the signature of the association’s president, Camden R. Fine.
In the name of “regulatory relief,” the ABA’s July 23 letter said, “the agency is prepared to essentially provide the credit union lobby’s legislative agenda through regulation despite Congress’ reluctance to do so directly.”
“The NCUA should not be allowed to end-run Congress by making a change of this significance by regulatory fiat,” Fine wrote on behalf of the ICBA.
The proposal, Fine said, would also discard or significantly weaken a series of “prudential restrictions on member business lending such as borrower guarantee requirements, loan-to-value caps on collateral used to secure loans, and loan-to-a-single-borrower limits.”
The ABA argues that the regulatory proposal “effectively makes the cap irrelevant through changes to loan participations, threatening safety and soundness and diverting credit unions from their mission of serving consumers.”
Watering down statutory prohibition on supplemental forms of capital and limitations on credit union fields of membership will fuel substantial growth in the tax-exempt credit union industry, the ABA says, predicting the result will be “a mockery of any concept of serving a targeted market.”
The ABA puts the value of the tax exemption credit unions enjoy at $25.39 billion over 10 years. “These proposed changes would exponentially expand that tax subsidy while creating significant safety and soundness concerns, and should call into question whether the 81 year- old tax exemption is appropriate in the modern era,” the ABA letter to lawmakers said.