Credit unions want to be your small business lender
Credit unions are lobbying Congress to increase the cap on how much they can lend to business from 12.25 percent of their total assets to 27.5 percent. Banks oppose the change, arguing that credit unions - nonprofit institutions that do not pay federal income taxes - should be subjected to the same rules and regulations as banks if they behave more like them.
The change would enable St. Mary's Bank, which has a commercial loan portfolio of about $90 million, to double or even triple how much money it has available to lend to businesses each month, says Ron Covey, its CEO and president.
"It would be tremendous not just for St. Mary's but for the state of New Hampshire and for small businesses in this state," Covey says. "We close a million a month in small-business loans, which equals our monthly amortization on our books today. As current customers pay their loans, it frees up more money we can loan."
The bank's average commercial loans are about $200,000, says Covey, who estimates that changing the cap would increase the amount of commercial lending from credit unions in New Hampshire by about $40 million.
While the change would be significant, it would still leave banks with 90 percent of the commercial lending business in the state once St. Mary's and other credit unions involved in commercial lending hit that new cap in a few years.
"We have such a small percentage of the business market in New Hampshire. Less than 5 percent of commercial loans in the state are from credit unions," Covey says. "It's not like we'd be taking away an enormous amount of their business."
He disputes the notion from the banking industry that commercial lending conflicts with the original mission of credit unions, which were organized to serve the needs of groups with a common bond, such as the French-Canadian mill workers who were St. Mary's client base when it was founded in 1908.
"We were the original credit union in the United States," says Covey, who notes there was no cap on commercial lending imposed on credit unions until 1998. "We have been doing business lending since the start. I don't know where they came up with that idea."
The New Hampshire Bankers Association strongly opposes the change, says Mark Primeau, president and CEO of Bank of New Hampshire. He sees no need for increasing the limit.
"I don't believe there are any credit unions in New Hampshire that are even near the cap. If there are, there is only one," he says. "There is no necessity, and that's true of the vast majority of credit unions in the country."
Primeau argues that credit unions typically don't have the expertise needed to make commercial loans nor do the regulators who govern them. But it's clear Primeau's primary concern is the evolution of credit unions, which now provide many of the same services as banks. The original intent of credit unions was to serve people with a common bond and of modest means, he says.
"Over the years, that has been weakened dramatically to the point that credit unions can serve the public without a common bond, which we believe is a violation of the original intent and has strayed from the original philosophy for which credit unions were formed," he says.
Credit unions, by their very structure, have a competitive advantage, bankers say.
"It's an unfair situation where credit unions can reach out to anyone without restriction yet they do not have to pay federal income taxes," Primeau said. "If a credit union wants to act like a bank and provide all the services that a bank provides, they should be treated as a bank and be taxed and regulated like a bank."
Michael L'Ecuyer, president and CEO of Bellwether Community Credit Union, was in Washington, D.C. last week lobbying for the legislation with other members of the Credit Union National Association. L'Ecuyer, who says he spent half his career working for banks, says the nonprofit cooperative status of credit unions has always been a sore point for the banking industry. He says raising the ceiling would allow credit unions like his to attract and retain skilled commercial lenders.
"We think this is good public policy because any time you can increase access to capital for borrowers, that's a good thing, and in this economy it's a particularly good thing," he said. "More capital to more borrowers will equate to more jobs. And this can all be done with no cost to taxpayers."
Unless, as a banker might say, you consider a financial institution that does not pay taxes a cost to taxpayers.
Mike Cote is business editor at the Union Leader. Contact him at 668-4321, ext. 324 or firstname.lastname@example.org.