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MBL Comment Letters Set New Record at NCUA
Tuesday, September 8, 2015 6:45 AM

The National Credit Union Administration reported Thursday that a proposed overhaul of its rule governing member business lending had generated a whopping 3,088 responses. But the even bigger surprise is that most of the letters were from bankers opposing the proposal.

Credit unions, by and large, are pleased with the proposal that is aimed at easing restrictions on MBL, so it's not surprising that their banking counterparts are displeased. NCUA lacks the power to amend a congressionally mandated cap limiting such loans, which currently stands at 12.25 percent of a credit union's assets. The agency, however, can implement certain measures that, as a whole, could make business lending markedly easier.

Among other things, the recent proposal includes verbiage that would scale back the limit on loan-to-value ratios for business loans, eliminate a provision requiring borrowers to personally guarantee their loans, and increase the amount a credit union can lend to one borrower. It also eliminates a stipulation that loan officers have at least two years of business lending experience. Credit unions are also backing legislative efforts to increase the cap on member business lending to 27.5 percent.

Even without those changes, member business lending has been steadily rising. The credit union industry's member business loan portfolio totaled $54.4 billion on June 30, an 11 percent increase from a year earlier. Banks view the prospect of more member business lending with each loan booked by a credit union representing one denied to banks. Credit unions counter that they make loans most banks won't touch.

"Credit unions generally lack the skills and controls necessary to safely engage in this business" Harris Simmons, chairman and chief executive of Zions Bancorp. in Salt Lake City, wrote in his Aug. 27 comment letter. "Credit unions were established to serve people of modest means who shared a common bond. … I sincerely hope NCUA will withdraw this proposal and encourage credit unions to instead focus on the mission given the industry by Congress."

The American Bankers Association and the Independent Community Bankers of America also submitted sharply worded letters blasting any expansion of member business lending and launched aggressive lobbying drives aimed at making banks' opposition clear.

"ABA has been pushing this issue hard," spokesman John Hall wrote Thursday in an email to American Banker. The association "put out multiple appeals to our members to articulate their concerns directly to NCUA."

The bad blood between banks and credit unions is hardly a new phenomenon, and credit unions and their backers have also been vocal. And it's not just from credit unions—small businesses are chiming in, as well.

In an Aug. 12 comment letter, Stacey Mitchell, writing on behalf of Advocates for Independent Business, a two-year-old trade group that represents florists, booksellers, bicycle dealers and other independently owned retailers, said that more business lending was badly needed to counteract a credit shortage.

Mitchell acknowledged in an interview Friday that community banks provide the lion's share of credit for small businesses, but she said mom-and-pop retailers still face an acute shortage of small-dollar credit, especially loans for less than $100,000. "The local bookstore that wants to add inventory, and the small coffee shop that wants to open a new location," are being squeezed, she said.

The NCUA made the draft of its member business lending proposal public on June 18. The comment period for letters closed on Aug. 18. A final vote on the issue is expected sometime this fall.