Conditions Bode Well for Passing MBL Bill

Small-business owners continue to receive the cold shoulder from banks.

May 18, 2011

Robin Pharo runs a green building consulting firm near Madison, Wis.  She approached two banks and a credit union about getting an automatic rate cut (ARC) loan—a five-year, 0% loan available under the federal stimulus program. But ARC loans aren’t big moneymakers for financial institutions. You can guess what happened.

“The banks said, ‘No, we’re not going to make any money on this loan,’?” Pharo says. “We understood that, but we were going to bring our whole book of business over: a line of credit, business credit cards, business checking. But they just weren’t interested.”

She had a far different experience at Summit Credit Union in Madison. “I said, ‘I know ARC loans aren’t going to make a lot of money for you. But we’re willing to bring all our business over,” Pharo recalls.  “And [the lending officer] said, ‘We’d be happy to do an ARC loan for you. We don’t care if you bring your book of business over. We’d love it if you do, but ARC loans are going to make so much sense for you, and that’s who we’re in this business to serve.’?”

That’s why Congress ought to pass S. 509, introduced by Sen. Mark Udall, D-Colo. It would raise the statutory cap on credit union member business lending (MBL) from 12.25% of total assets to 27.5%. As Udall notes, these changes “would not cost taxpayers a cent, but they would dramatically increase the amount of private capital to small businesses to help make payroll, buy inventory, and expand and innovate.” 

The arguments that prompted Sen. Udall to call passage “a no-brainer” last year still hold true. Vociferous banker opposition blocked that bill, and we expect it will be no less vociferous again.

But significant political differences increase the likelihood the bill will win passage. Consider:

  • The Senate bill starts with administration support this year. The additional regulatory safeguards the U.S. Treasury wanted added to the bill last year are already in.
  • A key Republican senator, John Ensign of Nevada, has already joined GOP Sens. Susan Collins and Olympia Snowe of Maine as a co-sponsor, giving the bill more critical Republican backing. “We have a healthy mix of senators, both geographically and ideologically,” says John Magill, CUNA’s senior vice president of legislative affairs.
  • Rep. Ed Royce, R-Calif., the bill’s House champion, remains a senior House Financial Services Committee member, but is now in the majority. He also introduced an MBL bill, H.R. 1418, the Small Business Lending Enhancement Act. “We’ve gained a great deal of traction and a lot of visibility on this issue,” he said at CUNA’s Governmental Affairs Conference (GAC). “This is just the beginning of our efforts.”
  • Sen. Udall quickly returned to the Senate floor early in the new session to push for a vote, showing colleagues he will be dogged in his pursuit of Senate passage. In a letter to CUNA CEO Bill Cheney shortly after talking up the MBL bills at the GAC, Udall added a handwritten note: “We’re going to get the Small Business Lending Act passed!”
  • Congress last year gave com­­mu­nity banks $30 billion in unspent TARP funds to put toward small-business lending, making it harder for banks to argue this year that nothing should be done for credit unions—especially when the credit union solution requires no tax?
  • payer dollars.

Meantime, the weak economic conditions that augured so strongly for passage last year haven’t improved much. And too many small-business owners like Robin Pharo continue to receive a cold shoulder from banks.

An MBL bill, now predicted to generate $13 billion in new loans the first year and create 140,000 new jobs (up from $10 billion and 100,000, respectively), deserves passage.

Credit unions will still have to work intently to build congressional support in the face of stiff banker opposition, but conditions have moved more in our favor. As Cheney told the 4,000-strong GAC crowd: “We can get this done.”

MARK WOLFF is CUNA’s senior vice president of communications. Contact him at 202-508-6764 or at