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CUNA Dispels Bank Rhetoric, Sets Record Straight on Credit Union Lending
Wednesday, June 17, 2015 6:45 AM

Credit Union National Association wrote to the House Appropriations Committee yesterday supporting H.R. 1422, the Credit Union Residential Loan Parity Act, a provision that would grant credit unions parity with the banks on business lending.

The American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA) submitted a letter to the committee opposing the provision pointing to the credit union federal tax status and an arbitrary cap on credit union business loans. CUNA’s letter corrects the record and dispels the bankers’ inaccurate statements.

H.R. 1422, the Credit Union Residential Loan Parity Act, would reclassify a 1-4 family non-owner occupied property as a residential loan. Under current law, these loans are classified as commercial loans, putting credit unions at a direct disadvantage with banks. 

CUNA’s full letter to the committee follows:

The Honorable Harold Rogers
Committee on Appropriations
United States House of Representative
Washington, DC 20515
The Honorable Nita Lowey
Ranking Member
Committee on Appropriations
United States House of Representatives
Washington, DC 20515

Dear Chairman Rogers and Ranking Member Lowey:

On behalf of the Credit Union National Association (CUNA), I write today in response to the June 11th, letter from the American Bankers Association and the Independent Community Bankers of America expressing opposition to the inclusion of H.R. 1422, the Credit Union Residential Loan Parity Act in the Financial Services and General Government Appropriations Act for FY 2016.  CUNA represents America’s credit unions and their more than 100 million members.  We strongly support H.R. 1422, which would enable credit unions to better serve their members by providing more rental housing in their communities.

The Federal Credit Union Act, unlike the similar bank enabling statutes, stipulates that a loan for a 1-4 family non-owner occupied (1-4 family NOO) residential property must be classified as a business loan, putting credit unions at a direct disadvantage to banks in this market.  These loans are not commercial loans – they are generally made to members so that they can purchase small rental properties.  According to NCUA call report data, the average size of a credit union 1-4 family NOO loan is approximately $175,000.  These are clearly not the commercial loans that the banking trades have suggested they are, and the proposal would not allow all rental housing loans to be exempt from the cap, as the banking trades suggest it would.  This proposal would only allow loans made on small rental units to be exempt from the cap. 

The National Credit Union Administration agrees that the treatment of these loans should more closely resemble residential loans than commercial loans, which is one of the reasons that it has proposed to treat 1-4 family NOO differently than commercial loans in its proposed risk-based capital rule.  We also note that NCUA has testified before Congress in support of H.R. 1422.[1]  The credit union regulator and insurer has indicated this is the preferable treatment of these loans; we urge you to correct the statutory treatment of these loans to provide parity.

We also urge you to reject the banking trade associations’ arguments against this proposal and other proposals aimed at ensuring small businesses have access to credit from credit unions.  Their arguments expose their willful ignorance of the credit union mission and history as well as the purpose of the tax status. 

The bankers assert that “credit unions were created and given a tax subsidy for the purpose of serving individuals of modest means with a common bond, primarily through consumer lending.”  The fact is credit unions were created because borrowers could not access credit from banks, a problem that continues for many consumers and small businesses today.  The organizers of the first credit unions in the United States came together using a common bond as a credit worthiness test, pooled their resources, and loaned to each other; some of the first loans that the original credit unions made were for small business purposes

The banker’s understanding of the credit union tax status is simply false.  Credit unions are exempt from income taxation because of their structure as not for profit cooperatives and their mission “to promote thrift among members and to create sources of credit for provident and productive purposes.”[2] By contrast, banks are organized as for-profit entities with a mission to make money for their shareholders.  These are the distinctions that drive the tax treatment for both entities; powers have never played a role in determining the tax treatment.

The banks further assert that Congress imposed a cap on member business loans “to ensure adherence to this mission.”  The unfortunate fact is that Congress imposed this cap because in 1998 the bankers successfully took advantage of a legislative situation in which the credit union system needed a new law enacted.  The cap is arbitrary; it has a deleterious effect on small business lending; and it is wholly inconsistent with the credit union mission to create sources of credit for provident and productive purposes:  without question small business lending represents lending for productive purposes.  Credit unions’ advocacy on behalf of this legislation and other bills to enhance small business lending is proof positive that they are adhering to their mission:  they want to serve their members more fully by meeting their members lending needs.  It is a concept that may be foreign to a banking industry that, during the financial crisis, withdrew lines of credit from small business while credit unions continued to serve these borrowers.

The bankers’ end game is clear and their views should be disregarded because they are littered with inaccuracies and fallacies.  At the end of the day, Congress has the ability to ensure small businesses have access to credit from lenders capable of providing it; credit unions can help if you allow them to. 

H.R. 1422 is about parity in the treatment of loans for 1-4 family nonowner occupied residential properties.  We urge you to closely consider what the Committee may be able to do to advance this bill through the appropriations process.  I look forward to working with you and the Committee on this issue and other future matters that credit unions may face.  On behalf of America’s credit unions and their more than 100 million members, thank you very much for supporting credit unions.


Jim Nussle

President & CEO

 [1] Testimony of Larry Fazio, Director, Office of Examination and Insurance, National Credit Union Administration before the House Committee on Financial Services hearing on “Examining Regulatory Burden – Regulator Perspective.”  April 23, 2015.  17.

2 12 U.S.C. 1752(1)