WASHINGTON (9/30/15)--Credit unions, not online marketplace lenders, are best positioned to satisfy the lack of capital for underserved segments of the population, CUNA told the U.S. Treasury Tuesday. In a letter on the Treasury’s request for comments regarding online marketplace lending, CUNA discussed credit unions’ continued growth in member business lending, and the burden imposed by the statutory 12.25% cap on such lending.
“As Treasury begins its review of online lending, it is critical that it understand the compliance burdens currently imposed on credit unions by the National Credit Union Administration, Consumer Financial Protection Bureau (CFPB) and other financial regulatory bodies,” CUNA’s letter reads. “Credit unions of all asset sizes are severely struggling to comply with ever-increasing regulatory requirements.”
Online marketplace lenders provide funding through online loan applications, rarely have brick-and-mortar retail branches and use data sources and technology-enabled underwriting models to automate processes such as determining a borrower’s identity and credit risk.
While CUNA agrees with the Treasury’s assessment that consumers, small businesses and “promising new enterprises” face barriers when it comes to accessing affordable credit, CUNA questions whether online marketplace lending is the most effective method of expanding credit access to these markets.
“Credit unions are not-for-profit financial cooperatives with the statutory mission of meeting the credit and savings needs of consumers, often in low-income or underserved populations,” the letter reads. “In fact, there are over 2,300 credit unions--serving over 23 million members--specifically designated by the NCUA as “low-income.” Low-income credit unions are often the only insured depository institutions serving low-income and underserved areas.”
Credit union business loan portfolios have increased from $13.4 billion in 2004 to $51.7 billion in 2014, while the percentage of credit unions offering business loans has increased significantly. CUNA notes that statistics such as these show credit unions are working hard to fulfill the business lending needs of their members, but could be doing more if it weren’t for the 12.25% cap.
“As a result of this arbitrary limit that has been in place since 1998, many credit unions are rapidly approaching the cap while others choose not to engage in business lending because of the cap,” the letter reads.
CUNA also pointed out that, since online marketplace lenders face the same threats as traditional financial institutions, including privacy and cybersecurity threats, any approach taken by the Treasury regarding these lenders should a comprehensive study of potential threats.