WASHINGTON (10/14/14)--Credit unions' small business loan approval rate is still more than double that of large banks.
While small business loan approval at credit unions dropped slightly in September and big bank approval rates ticked up a bit the same month, credit unions still significantly out-performed big banks in this area. The percentages come from the latest Biz2Credit Small Business Lending Index for September, which analyzes 1,000 loan applications per month.
Section 723 of the National Credit Union Administration's regulations limit a credit union's net member business loans to 12.25% of its total assets.
During The Hill forum last month, sponsored by the Credit Union National Association, American Consumer Institute President Steve Pocsiak cited the 12.25% cap as a regulation that could be slowing the economic recovery.
"Banks are 17% below the amount small business lending since the onset of the recession. During the same time period, credit unions picked up 38% in terms of lending. As banks were dropping their lending to small businesses, credit unions were stepping up and increasing that lending," he said. "Why is that important? Because if you look at how the cycle works, 65%-70% of jobs created in the upturn are jobs from small businesses. So it's very important to get capital to them. There's definitely demand for it, but the banks aren't meeting it."
He went on to question the reasons behind the 12.25% cap.
"We have to ask ourselves, why do we have those caps in the first place. If you actually look at the data, a credit union is a lot less risky. There's fewer failures, [accounts] uncollectible are lower than banks, the net loss is lower," Pocsiak said. "So you start to look at the cap, and you see that it really doesn't have much to do with protecting the public, what it really has to do with is protecting the banks, who have around 95% of the small business loans."
According to CUNA, increasing the cap to 27.5% would mean credit unions could lend an additional $13 billion to small businesses, creating approximately 146,000 new jobs without any extra cost to the taxpayer or increase in the size of the government.
The member business lending cap can only be raised by Congress. CUNA has advocated for the cap to be raised and for certain exemptions to the cap in front of Congress on numerous occasions over the past few months, including testifying before the Senate Banking Committee and the House subcommittee on financial institutions and consumer credit.
CUNA has also pushed for member business lending cap relief from a regulatory perspective. While only Congress can raise the cap, CUNA has asked the NCUA to revisit the member business loan rule on a regular basis since 2008.
Since March 2012, CUNA has asked the NCUA to update regulations implementing exemptions for credit unions that have a history of primarily making member business loans.
In March of this year, then-CUNA President/CEO Bill Cheney to expand exemptions and remove limitations to member business lending that are not specifically required by statute.
The NCUA's Office of General Counsel said earlier this year that member business lending regulations could be "revisited and updated" sometime this year.