Standing Up to a Reckless Regulator

Every now and then we have the chance to stand up for what’s right against powerful forces. As the legacy of a group of colonists who stared down and defeated the world’s greatest empire, it’s virtually our birthright as Americans. So in some ways ICBA’s federal lawsuit against the National Credit Union Administration for its unlawful lending rule feels like the extension of a longstanding national tradition.

ICBA’s suit challenges the NCUA’s rule allowing tax-exempt credit unions to exceed commercial lending limits set by Congress. In a nutshell, federal law defines credit union “member business loans” to include any and all commercial loans on a credit union’s balance sheet. But the NCUA’s final rule unlawfully allows nonmember commercial loans and purchased loan participations to be excluded from the statutory limits.

Regulatory Rubber Stamp
If this issue sounds familiar, that’s because credit unions have been trying to push it through Congress for more than a decade. But lawmakers have repeatedly declined to expand credit union lending loopholes. What is a tax-exempt industry to do?

Well, if you’re the credit union industry, you simply wait for your captive federal regulator to rewrite the law for you. And that is precisely what the NCUA has done—unilaterally sidestep the legislative branch. You know, the branch of government those scrappy American provincials later enshrined in Article I of the U.S. Constitution.

The only problem for the credit unions is that ICBA was watching. Indeed, we’ve seen more than enough. After years of evolving from a regulatory agency to a cheerleader for its tax-exempt industry, the NCUA has finally gone too far. In attempting to serve as the regulatory rubber stamp for a handful of growth-oriented credit unions seeking to expand at all costs, the NCUA has overstepped its legal bounds.

Bad Faith, Bad Policy
Quite simply, the NCUA’s business-lending rule contradicts federal law, which expressly limits the amount of member business loans that may be held on credit union balance sheets. The NCUA has absolutely no authority to concoct its own exceptions to the “member business loan” definition. Indeed, the agency itself has acknowledged that it “does not have authority to amend the MBL definition through regulation.”

Not only is the NCUA rule unlawful, it’s also bad policy. The agency’s plan places undue risk on U.S. taxpayers, expands government-sponsored advantages for credit unions, and jeopardizes the safety and soundness of these institutions. Our tax dollars should not be used to promote reckless lending practices at these tax-exempt companies.

So here we are—taking a stand. ICBA’s volunteer board of community bankers has elected to confront a heedless federal agency and hold it accountable. We might not be Washington, Jefferson and Adams, but the NCUA isn’t exactly the British Empire, either.

So I encourage community bankers, our allies, and consumers everywhere to go to ICBA’s “Stop the CU Grab” website to learn more about the lawsuit and how to help through the ICBA Credit Union Litigation Fund. After all, we’re taking action not only because the law is on our side, but because it’s the right thing to do.

Study Affirms Community Banks’ Small-Biz Leadership

It’s something ICBA and the community banking industry say all the time: community banks are the nation’s leading small-business lenders. And the numbers back it up. While community banks make up less than 20 percent of the banking system’s assets, they dole out more than half of its small-business loans.

Still, some small businesses continue to test their alternatives: megabanks, credit unions, and now online lenders. The latest set of numbers shows that these businesses should stick with a community bank.

According to a new study from seven Federal Reserve Banks, small businesses that apply for loans with community banks are the most successful and most satisfied.

Here’s what the study found:

• Community banks were the most likely to make a loan, extending financing to 76 percent of loan applicants while large banks approved just 58 percent.
• Community banks also had the highest satisfaction scores, with 75 percent reporting that they were satisfied with their overall experience, compared with scores of 56 percent for credit unions and 51 percent for large banks.
• While online lenders had the second-highest rate of approval at 71 percent, just 15 percent of borrowers said they were satisfied with the experience.
• Of the firms that were dissatisfied with their experience with online lenders, 70 percent cited high interest rates and 51 percent reported unfavorable repayment terms.

With the amount of blood, sweat and tears that goes into launching a startup or expanding a small business, entrepreneurs should know that they have a partner in their local community bank. That is more important now than ever before, as demonstrated in a 2014 ICBA study that found that 41 percent of Millennials say they are very interested in starting up their own business.

So community bankers, let’s continue to spread the word about the importance of our industry in getting small businesses off the ground and taking our economy along with them. It’s an important message that everyone needs to hear, and now we have even more data to back it up.

Let’s Put a Stop to Credit Union End Run Around Congress

The United States has three branches of government to prevent any one from having too much power. The tax-exempt credit union industry apparently skipped this civics lesson because it obviously doesn’t believe it should have to listen to Congress.

The National Credit Union Administration has proposed dramatically revising business-lending rules for these tax-subsidized institutions. Current law allows any credit union to make business loans worth up to 12.25 percent of its total assets. While lawmakers have repeatedly declined to advance controversial legislation to raise this cap, the NCUA has unilaterally done so on behalf of the industry it is supposed to regulate.

It is up to community bankers to call out the NCUA for sidestepping the cap established by Congress and attempting to extend the industry’s government-funded competitive advantage. ICBA offers community bankers a customizable letter to Congress and the NCUA to express opposition to this misguided plan.

The NCUA’s proposal blatantly skirts the statutory cap by exempting more loans from it, removing explicit loan-to-value limits and increasing the population cap for community charters by 400 percent. By piling on additional exemptions, the plan increases risks to the financial system. According to the Capital Policy Analytics Group, credit unions with the highest levels of business loans represent a disproportionate share of credit union failures, showing the risks of blanketing these institutions with new business-lending authorities.

The NCUA wants to assuage public concerns over these risks by requiring credit unions to create credit policies and risk-rate their loans. Rather than offering reassurance, this suggestion is an alarming admission of the weak oversight and regulatory standards now in place for credit unions. Credit policies and risk-rating systems have been standard community bank practices for decades—where have the credit unions been?

The truth is that aggressive and fast-growing credit unions are seeking to leverage their tax-exempt status to siphon top-performing small-business loans away from community banks, which actually pay taxes to their federal, state and local governments. Nearly 99 percent of credit unions below the federally mandated cap can already expand their lending if they choose to do so, with no change to federal law or regulation. And there are already plenty of ways to circumvent the limit because loans under $50,000 and Small Business Administration loans as large as $5.5 million don’t count toward it. Continuing to relax these congressionally mandated restrictions will only serve the interests of the riskiest, growth-oriented credit unions, while putting the broader financial sector at greater peril.

Credit union business-lending caps were established by Congress because these tax-subsidized institutions are designed to serve people of modest means with a common bond. These days, multi-billion-dollar credit unions are allowed to have virtually no common bond among members, yet they continue to operate tax-free. Meanwhile, they remain unique among lenders due to their exemption from regulations such as the Community Reinvestment Act.

Community bankers, tell Congress and the NCUA that the regulator should focus on implementing and enforcing credit union laws as they are written. If credit unions want to operate like banks, they should be taxed and required to meet the same set of regulatory standards. They can’t have it both ways.

Community Bankers to Washington: Let’s Work Together To Get the Job Done

Last week’s ICBA Washington Policy Summit showed once again that community bankers are not only willing to go the extra mile—they’re even grateful for the privilege. With nearly 1,000 community bankers and industry advocates in the nation’s capital to advocate positive reform in more than 300 meetings with policymakers, there was a feeling of enthusiasm and optimism unique among community bankers.

They rolled up their sleeves to solve problems, support local communities and expand access to credit like it’s their job. (That’s probably because it is.) And just like the hard work that community bankers put into their local communities, their efforts in Washington are already paying off.

As I wrote in Morning Consult before the summit, the industry focused its meetings with Congress and federal regulators on right-sizing regulation, instituting uniform data-security standards, and ending taxpayer subsidies for credit unions and the Farm Credit System.

First, community bankers urged congressional support for the CLEAR Relief Act (H.R. 1233/S. 812) and the Community Bank Access to Capital Act (H.R. 1523) to ease excessive regulation and promote access to capital on Main Street. Second, attendees called on policymakers to impose Gramm-Leach-Bliley Act-like standards on other players in the payments system, including retailers, to ensure meaningful consumer protection. Finally, the industry took on unwarranted tax subsidies for credit unions and the Farm Credit System to ensure a more consistent and less costly approach to taxing financial institutions.

In other words, community bankers came to Washington to support common sense and consistency—an appropriate regulatory structure, a level playing field. By rolling up their sleeves and digging in, community bankers have shown a readiness to put in the work that is needed to advance positive reform. And as I noted—we’re seeing results. H.R. 1233 has added 22 cosponsors since last week to bring its total to 40 in the House, and S. 812 has tacked on eight for 29 total Senate cosponsors.

But we need to continue applying pressure on Congress to ensure passage of these critical reforms. The Washington Policy Summit might be over, but community bankers everywhere can stay in touch with their policymakers via ICBA’s Be Heard grassroots website. Follow up with your congressional delegation and hold their feet to the fire. By advocating positive reforms in letters to Congress, we can all go the extra mile to ensure community banks can continue to support local customers and communities one loan at a time.