Lifting the credit union member business lending (MBL) cap would help small businesses and low-income families disproportionately impacted by the lockdowns, Young Voices’ John Kristof wrote this week on the Foundation for Economic Education site. Noting that the country is in a recession and Congress is in a “fiscal gridlock,” he says billions in capital could be freed up by simply lifting the MBL cap currently set at 12.25% of assets.
“The cap leaves billions of dollars of potential loans to businesses off the table. In an analysis of FDIC and National Credit Union Administration call data, the Credit Union National Association estimates that, if the MBL cap were lifted, credit unions would lend an additional $5 billion “in capital to small and informal business ventures” over the next year,” he writes. “Another $5 billion to small businesses and entrepreneurs could translate to 50,000 jobs created over the same period.”
The article notes that these funds are for the most part economic opportunities unique to credit unions, as opposed to loans “stolen” from banks, as Small Business Administration research shows that 81% of business loans given by credit unions would not have been given by traditional banks.
“If we assume each dollar loaned creates the same number of jobs, then with their extra $5 billion unconstricted, credit unions can offer over 40,000 new jobs that traditional banks cannot,” it reads.
It also notes that lifting the cap may expand the geographic area where people of lesser means may be able to receive a business loan, as the statutory cap often does not allow enough loans to make MBLs sustainable.
“Lifting the cap would allow more credit unions to run sustainable MBL programs, which would be a boon to small town America,” it reads. “There is no statutory reason for a cap. The MBL cap was originally instituted to ensure credit unions didn’t focus too much on pursuing profit through risky business lending and ignoring their mission of serving community needs. But small business lending is a way credit unions can and have provided opportunities for people of lesser means.
“Holding credit unions to an arbitrary limit so significantly less than their traditional counterparts doesn’t protect the community; it stifles it,” it adds, saying that keeping the cap in place amounts to “handicapping ourselves” during the recession and eventual recovery.