Congress Insisted to Increase Business Lending Cap

Assuring that small-business lending would grow, credit unions insist that the Congress increase their business lending cap. However, there are some who believe that the facts are altered.

Sen. Mark Udall proposed the Small Business Lending Enhancement Act (S. 2231). It would transfer loans at community banks to credit unions, which do not actually pay taxes. For years now, community banks in cities all over America pay their taxes and have been assisting small businesses by means of loans.

The truth is that credit unions have sufficient small-business lending authority. The proposed Small Business Lending Enhancement Act would basically let credit unions which do not pay taxes to make big commercial loans. As a result, it would benefit them in terms of safety and soundness.

However, credit unions are also aware of the disadvantages that will come with the proposal. Some of those who disagree with the proposal include credit union executives from places such as Michigan, Washington state and California. Moreover, they are saying that it might result to reckless lending and rising credit union failures.

Stuart Perlitsh, the chief executive of Glendale Area Schools Federal Credit Union wrote a letter addressed to the Senate leaders last April 11. According to the letter, most of the credit unions will not profit if the business lending cap is increased, and instead, they will pay more expensive premiums caused by the credit union failures.

One other truth is that allowing the shift of business loans from taxpaying community banks to non-taxpaying credit unions will place the Treasury in more debt. In the previous Congress, a parallel bill would have cost taxpayers lost revenue of nearly $354 million after a decade. Apparently, this proposal would cost greater than that.

If credit unions want to develop their business lending, then they have another option, which is to switch into a mutual saving bank charter. In fact, a few have already done this because of its flexibility.

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